^D 


-WKlNS,Jr. 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


ANNOTATED. 


A  COLLECTION  OF  ALL 


CASES  AFFECTING  BANKS  DECIDED  BY  THE 
COURTS  OF  EAST  RESORT 


IN  THE 


UNITED  STATES. 


EDITED  BY 

THOMAS  JOHNSON  MICHIE. 


Volume  I. 


THE  MICHIE  COMPANY,  Publisukks. 
Charlottesvii.le,  Virginia. 


T 


PUBLICATIONS 

of 

THE  MICHIE  COMPANY, 

Charlottesville,  Va. 

Virginia  Reports,  Annotated. 

American  and  English  Railroad  Cases,  N.  S. 

American  and  English  Corporation  Cases,  N.  S. 

Municipal  Corporation  Cases. 

Banking  Cases. 


Copyright,  1899, 


The  Michie  Company. 


<s 


TABLE  OF  CASES. 


VOLUME  I. 


Allen  et  al.,  National  Bank  of  Commerce  in  Denver  v.  (C.  C.  A.)     53 

American  Nat.  Bank  of  Denver  v.  Hammond  (Colo.) 409 

American  Trust  &  Savings  Bank  v.  Austin  et  al.  (N.  Y.) 122 

Anderson,  First  Nat.  Bank  of  Grand  Forks,  N.  D.  t/.  (U.  S.) 89 

Andrews  v.  Steele  City  Bank  et  al.  (Neb. ) 76 

Austin  et  al.,  American  Trust  &  Savings  Bank  v.  (N.  Y.) 122 

Auien  V.  United  States  Nat  Bank  of  New  York  (U.  S.) 416 

Backus  et  al..  Farmers'  Nat.  Bank  of  Owatonna  v.  (Minn.) 49 

Baker  et  al.,  Dickson  et  al.  v.  (Minn.) 140 

\     Bank  of  Staplehurst,  Stuart  v.  (Neb.) 518 

O     Barnard,  Longfellow  v.  (Neb. ) 751 

Beard,  C.  B.  Congdon  &  Co.  z/.  (CCA.) 568 

Beard  z/.  Independent  Dist.  of  Pella  City  (C  C  A.) 385 

Beard,  Larason  et  al.  v.    (C   C  A.)    568 

^    Beard,  Phelps   et  al.  v    (C  C   A.) 568 

-    Bennett,  Burrell  et  al.  v.  (Wash.) 673 

t..     Bowen  v.  Needles  Nat.  Bank  et  al.  (CCA.) 644 

r^''     Briggs'  Assignees,  First  Nat.  Bank  of  Brandon  v.  (Vt.) 19 

%     Brightwell,  Midland  Nat.   Bank  of  Kansas  City  v.  (Mo.) 379 

K     Burrell  ^Z"  a/,  z/.  Bennett  (Wash.) 673 

Chapman,  Treasurer   of  Lorain    County,  Ohio,  First  Nat.  Bank 

of  Wellington,  Ohio  v.    (U.  S. )    325 

K      Chemical  Nat.   Bank,  McDonald  v.  (U.  S.) 657 

Chestnut  St.    Nat.  Bank  et  at..  Commonwealth,  to  Use   of   Com- 
monwealth Title  Insurance  &  Trust  Co.  v.  (Pa.) 748 

Childs,  Linton,  Tax  Collector  v.  (Ga.) 306 

Citizens'  Bank  of  Jennings,  State  ex  rel.  Burke  v.  (La.) 369 

Citizens'  Bank  of  Jennings  et  al.,  Valdetero  v.  (La  ) 601 

Citizens'  Bank  of   Mound    City  et  al.  v.  State  ex   rel.    Attorney 

General  et  al.  (Kan.  App. ) 85 

Citizens'  Bank  of  Union  City  et  al..  Union  Nat.  Bank  v.  (Ind.)  . .   712 
City  and  County   of    San  Francisco  v.    Crocker- Woolworth  Nat. 

Bank  of  San  Francisco  (C  C ) 318 

City  of  Memphis  et  at.,  Union  &  Planters'  Bank  v.  (Tenn.) 5 

Clark  County  Nat.  Bank,  Winchester  Bank  v.  (Ky.) 515 

Coburn,  Neal  et  al.  v.  ( Me. )   166 

Cockrell,  X   w  Farmers'  Bank's  Trustee  v.  (Ky.) 687 


I'ff'^sn'.r'-yfr; 


n 


TABLE  OF  CASES  [vOL  I 


Columbia  Nat.  Bank  v.  German  Nat.  Bank  (Neb.) 43 

Commonwealth,   to   Use  of  Commonwealth    Title  Insurance    & 

Trust  Co.  z-'.  Chestnut  St.  Nat.  Bank  ^z*  rt/.  (Pa.) 748 

C.  B.  Cong-don  &  Co.  :-.  Beard  (C.  C.  A..) 568 

Continental  Nat.  Bank  of  New  York  v.  Tradesmen's  Nat.  Bank 

of  New  York  (N.  Y. )  .. . 103 

Cooper  <;7  <7/.  v.  Hill  (CCA.) ...524 

Corn  Exchang-e  Nat.  Bank  v.  Solicitors'  Loan  &  Trust  Co.  et  al. 

(Pa.) 120 

Crocker-Woolworth    Nat.    Bank   of    San    Francisco,    City    and 

County  of  San  Francisco  v.  (C  C ) 318 

Dederick,   City  Assessor,   People  ex  rel.  Hearmaace  et  al.  Tax 

Com'rs  i/.  (N.  Y.) 316 

Deneg-re  et  al.,  Richardson  v.  (CCA.)  503 

D_^posit  Bank.  Rudd  et  al.  v.  (Ky. ) 157 

Deposit  Bank,  Rudd  v.  (Ky.)    157 

Dickson  el  al.  v.  Baker  etal.  (Minn.) 140 

Doppelt  c'.  National  Bank  of  The  Republic  (111.) 96 

East  River  Bridge  Co.,  O'Brian  el  al.  v.  (N.  Y.) 615 

Elder  V.  Franklin  Nat.  Bank  of  City  of  New  York  .(N.  Y.) 507 

Eufanla  Nat.  Bank,   Morris   v.  (Ala.) 677 

Farmers'  &  Drovers'  Bank,  M.  V.  Monarch  Co.  et  al.  v.  (Ky.)..   146 

Farmers'  &  Traders'  Bank,   Monarch  el  al.  v.  (Ky,) 153 

Farmers'  Nat.  Bank  of  Owatonna  t^'.   Backus  ^/ «/.  (Minn.)    ....     49 

Farmers'  Sav.  Bank  of  Victor,  Willett  v.  (Iowa) 32 

Farrow  z'.  First  Nat.  Bank  (Ky.) 16 

First  Nat.  Bank  of  Brandon  v.  Brig-gs'  Assignees   (Vt.) 19 

First  Nat.  Bank  of  Cambridge  v.  Hall  et  al.  ( Ala. ) 198 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins  (U.  S.) 635 

First  Nat.  Bank,  Farrow  v.  (Ky.)   16 

First  Nat.  Bank,  Gill  v.  (Tex.  Civ.  App. ) 28 

First  Nat.  Bank  of  Grand  Forks,  N.  D.  v.   Anderson  (U.  S.) 89 

First  Nat.  Bank  of  Helena  et  al.,  Guignon  v.  (Mont.) 290 

First  Nat.  Bank  of  Lake  Benton,  Minn.,  Watt  z*.  (Minn.) 737 

First  Nat.  Bank  of  Manning  v.  German  Bank  of  Carroll  County 

el  al.  (Iowa) 300 

First  Nat.  Bank  of  Marshalltown  v.  Marshalltown  State   Bank 

(Iowa) 179 

First  Nat.  Bank  of  Minneapolis,  Selover  v.  (Minn.) 739 

First  Nat.  Bank  of  Pensacola,  Oxford  Lake  Line  v.  (Fla.) 126 

First  Nat.  Bank  of  Sharon,  Pa.,  v.  Valley  State  Bank  of  Hutch- 
inson al  al.  (Kan.) 698 

First  Nat.  Bank  of  Wellington,  Ohio   v.  Chapman,  Treasurer  of 

Lorain  County,  Ohio,  (U.  S.) 325 

Fouche,  Merchants'  Nat.  Bank  of  Rome  z>.  (Ga.) 745 

Franklin  Nat.  Bank  of  City  of  New  York,  Elder  z^.  (N.  Y. ) 507 


B  CAS]                               TABLE  OF  CASES  iii 

Gale,  Israel  v.  (U.  S. ) 705 

German    Bank   of    Carroll    CountA-    et   a/..  First    Nat.   Bank   of 

Manning-  v.  (Iowa) 300 

German  Nat.  Bank,  Columbia  Nat.  Bank  v.  (Neb.)   43 

Gerner  v.  Mosher  t'/  al.  (Neb. ) 457 

Gill  V.  First  Nat.  Bank  (Tex.  Civ.   App. ) 28 

Gill,  Guthrie  Nat.  Bank  v.  (Okl.) 183 

Guig-nou  V.  First  Nat.  Bank  of  Helena  ef  al.  (Mont. ) 290 

Guthrie  Nat.  Bank  v.  Gill  (Okl. )    183 

Hall  et  al..  First  Nat.  Bank  of  Cambridg-e  v.  (Ala.) 198 

Hammond,  American  Nat.  Bank  of  Denver  v.  (Colo.) 409 

Hawkins,  First  Nat.  Bank  of  Concord,  N.  H.  v.  (U.  S.) 635 

Hill,  Cooper  et  al.  v.  (C.  C.  A.^ 524 

Hill  ^Z"  a/.,  Union  Nat.    Bank  of  Kansas  City  r/ a/,  z'.  (Mo.) 443 

Hodg-in  V.  People's  Nat.  Bank  (N.  Car.) 498 

Independent  Dist.  of  Pella  City,  Beard  v.  (C.  C.  A.) 385 

Israel  v.  Gale  (U.  S.) 705 

Kershaw  z'.  Ladd  i'/ a/.  (Ore.) 271 

Ladd  et  al.,  Kershaw  v.  (Ore.) 271 

Lamson  et  al.  v.  Beard  (C.  C.  A.) 568 

Linton,  Tax   Collector   v.  Childs  (Ga. ) 306 

Longfellow   v.  Barnard  (Neb.) 751 

McDonald  z'.  Chemical  Nat.  Bank  (U.  S.)    657 

McDonald  v.  Williams  etal.  (U.  S.) .  724 

Marshalltown    State    Bank,    First    Nat.  Bank  of  Marshalltown 

V.  (Iowa) 179 

Mead  27.  Pettigrew   (S.  D.) 595 

Merchants'  Nat.  Bank  of  Rome  v.  Fouche  (Ga.) 745 

Merchants'  and  Planters'  Bank  v.  Penland  (Tenn.) 25 

Merrill  v.  National  Bank  of  Jacksonville  (Two  cases)  (U.  S. ) 210 

Metropolitan  Bank,  Minneapolis  Sash  &  Door  Co.  v.  (Minn.) .'.  .  286 

Meyers  v.  New  York  County  Nat.  Bank  (N.  Y.) 72 

Midland  Nat.  Bank  of  Kansas  City  v.  Brightwell  (Mo.) 379 

Minneapolis  Sash  &  Door  Co.  v.  Metropolitan  Bank  (Minn.)  ....  236 

Monarch  et  al.  v.  Farmers'  &  Traders'  Bank  (Ky.) 153 

Moore  v.  Riverside  Bank  (N.  Y. ) 93 

Morris  v.  Euf aula'  Nat.  Bank  ( Ala. ) 677 

Mosher  et  al.,  Gerner  v.  (Neb.) 457 

Murray',  County  Treasurer,  Western  Investment  Banking-  Co.  v. 

(Ariz.) 758 

M.  V.  Monarch  Co.  et  al.  v.  Farmers'  &  Drovers'  Bank  (Ky.) 146 

Nassau  Bank  v.  National  Bank  of  Newburgh  et  al.  (N.  Y.) 768 

National  Bank  of  Commerce  in  Denver  v.  Allen  et  al.  (C.  C.  A.)  53 

National  Bank  of  D.  O.  Mills  &  Co.,  People  v.  (Cal.)    . 341 

National  Bank  of  Jacksonville,  Merrill  f.    (Two  cases)     (U.S.)  210 

National  Bank  of   Newburgh  et  al.,  Nassau  Bank  i'.  (N.  Y.) .  . . .  768 


IV 


TABLE  OF  CASES  [vOL  I 


National  Bank  of  The  Republic,  Doppelt    v.    (111.) 96 

Neal^/a/.  y.  Coburn  (Me.) 166 

Needles  Nat.  Bank  et  al.,  Bowen  z/.  (C.  C.  A.) 644 

New  Farmers'  Bank's  Trustee  v.  Cockrell  (Ky.) 687 

New  York  County  Nat.  Bank,  Meyers  z^.  (N.  Y.) 72 

O'Brian  et  al.  v.  East  River  Bridge  Co.  (N.  Y.) 615 

Old  Nat.  Bank  et  at.,  Pronger  v.  (Wash.) 399 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola  (Fla.) 126 

Penland,  Merchants'  and  Planters'  Bank  v.  (Tenn.) 25 

People  ex  rel.  Heermance  et  al.  Tax   Com'rs   v.    Dederick.    City 

Assessor,   (N.  Y.) 316 

People  V.  National    Bank  of  D.  O.  Mills  &  Co.  (Gal.) 341 

People's  Nat.  Bank,  Hodgin  v.  (N.  Car.) 498 

Pettigrew,  Mead  v.  (S.  D.) 595 

Phelps  et  al.  v.  Beard  (CCA.) 568 

Pierce  County  et  al.,  Scandinavian-American  Bank  v.  (Wash.)  .        1 

Pronger  v.  Old  Nat.  Bank  et  al.  (Wash.) 399 

Quinsigamond  Nat.  Bank,  Taft  v.  (Mass.) 99 

Richardson  v.  Denegre  et  al.  (CCA.) 503 

Riverside  Bank,  Moore  z'.  (N.  Y.) 93 

Riverside  Bank  v.    Woodhaven   Junction  Land  Co.  et  al.  (N.  Y. 

Sup.  Ct.  App. ) 297 

Robison  et  al.,  Warren  et  al.  v.  (Utah) 541 

Rudd  et  al.  v.  Deposit  Bank  (Ky. )  157 

Rudd  V.  Deposit  Bank   (Ky.) 157 

Scandinavian- American  Bank  v.  Pierce  County  et  al.  (Wash.)  .  .       1 

Schmelling  v.  State  et  al.  ( Neb. ) 670 

Selover  z'.  First  Nat.   Bank  of  Minneapolis  (Minn.) 739 

Solicitors'  Loan  &  Trust  Co.  et  al..  Corn  Exchange  Nat.  Bank  v. 


(Pa.) 


120 


Stapylton  v.  Stockton  et  al.  (CCA.) 262 

Stapylton  v.  Thaggard,  Tax  Collector   (CCA.) 320 

State  et  at.,  Schmelling  v.  (Neb.) 670 

State  ex  rel.  Anderson  et  al.  v.  Thum  (Idaho) 481 

State  ex  rel.  Attorney   General  et  al..  Citizens'  Bank  of  Mound 

City  et  al.  v.  (Kan.  App.) 85 

State  ex  rel.  Burke  v.  Citizens'  Bank  of  Jennings  (La.) 369 

Steele  City  Bank  et  al.,   Andrews  v.  (Neb.) 76 

Stockton  ^/ a/.,  Stapylton  y.  (C  C  A.)  262 

Stuart  V.  Bank  of  Staplehurst  (Neb.)    518 

Taft  V.  Quinsigamond  Nat.  Bank  (Mass.) 99 

Thaggard,  Tax  Collector,  Stapylton  z/.  (C  C  A.) 320 

Thum,  State  ex  rel.  Anderson  et  al.  v.  (Idaho) 481 

Tradesmen's  Nat.  Bank  of  New  York,  Continental  Nat.  Bank  of 

New  York  v.  (N.  Y.) 103 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City  et  al.  (Ind.) . .  712 


B  CAS]  TABLE  OF  CASES  V 

Union  Nat.  Bank  of  Kansas  City  et  al.  v.  Hill  et  al.  ( Mo. ) 443 

United  States  Nat    Bank  of  New  York,  Auten  z/.  (U.  S.)    416 

Union  &  Planters'  Bank  v.  City  of  Memphis  et  al.  (Tenn. ) 5 

United  States  Nat.  Bank  of  New  York  v.  Venner  (Mass.) 81 

Valdetero  v.  Citizens'  Bank  of  Jennings  et  al.  (Ea.) 601 

Valley  State    Bank  of  Hutchinson  et  al..  First    Nat.    Bank   of 

Sharon,  Pa.,  v.  (Kan.) 698 

Venner,  United  States  Nat.  Bank  of  New  York  v.  (Mass.) 81 

Warren  et  al.  v.  Robison   et  al.  (Utah) 541 

Watt  V.  First  Nat.  Bank  of  Eake  Benton,  Minn.  (Minn.) 737 

Western  Investment  Banking  Co.  v.  Murray,  County  Treasurer, 

(Ariz.) 7.58 

Willett  V.  Farmers'  Sav.  Bank  of  Victor  (Iowa) 32 

Williams  et  al.,  McDonald  v.  (U.  S.) 724 

Winchester  Bank  v.  Clark  County  Nat.  Bank  (Ky.) 515 

Woodhaven  Junction  Eand   Co.  et  al..    Riverside  Bank  v.  (N.  Y. 

Sup.  Ct.  App.)    297 

Wyant  et  at.,  Zang-  et  al.  v.   (Colo. ) 349 

Zang  et  al.  v.  Wyant  et  al.  (Colo.) 349 


BANKING  CASES. 


VOLUME 


Scandinavian-American  Bank 
Pierce  County  et  al. 

{Supreme  Court  of  Washington,  Nov.  ii,  i8g8,) 

Taxation  of  Bank  Stock — Non-resident  Owners.* — The  shares  of 
non-resident  stockholders  in  a  banking  corporation  organized  under 
the  laws  of  Washington,  and  doing  business  within  the  state,  can 
be  taxed  in  the  state  for  general,  state,  county,  and  municipal  pur- 
poses. 

Appeal  by  plaintiff  from  Pierce  county  superior 
court.     AMi'incd. 

Fenley  Bryan  and   Wm.  H.  Pratt,  for  appellant. 
A.  R.   Titlozt,\  Pros.  Atty.,  for  respondents. 

Dunbar,  J.  The  appellant  soug-ht  to  restrain  the 
treasurer  of  Pierce  county  from  seizing-  and  selling-  its 
property  in  satisfaction  of  taxes  levied  upon  shares  of 
its  stock  for  the  years  1895  and  1896.  Two  causes  of 
action  are  stated  separately  for  each  of  said  j^ears.  The 
complaint,  in  brief,  is  to  the  effect:  That  the  plaintiff 
is  a  banking  corporation  org^anized  under  the  laws  of 
this  state.  That  its  capital  stock  consisted  of  1,000 
shares  of  the  par  value  of  $100  per  share.  That  at 
the  time  that  the  statement  of  the  cashier  of  the  bank 
was  delivered  to  the  county  assessor,  as  required  by 
law,  825  of  said  shares  were  owned  by  persons  who 
were,  and  still  are,  nonresidents  of  this  state.  This 
was  upon  the  assessment  in  1895,  and  when  the  state- 
ment for  the  year  1896  was  made  875  of  said  shares 
were    owned  by    nonresidents.     That   an    assessment 

*See  note  at  end  of  case. 


2  TAXATION  [VOL  I 

Scandinavian-American  Bank  v.  Pierce  County 

was  made  upon  all  of  said  shares  thus  owned  by  non- 
residents, as  well  as  those  owned  by  residents  for  each 
of  said  \'ears,  and  that  all  of  said  shares  were  assessed 
and  taxed  for  the  years  1895  and  18%  in  the  states 
where  theovvners  thereof  reside, and  that  on  such  shares 
taxes  have  been  paid.  That  appellant  has  tendered 
the  county  treasurer  the  full  amount  due  for  taxes 
levied  upon  the  stock  owned  by  residents  of  this  state, 
and  that  it  now  is,  and  at  all  times  has  been,  ready, 
willinf>',and  able  to  pa}'  that  amount.  The  other  alleg-a- 
tions  of  the  complaint  are  immaterial  so  far  as  the  dis- 
cussion of  this  question  is  concerned.  A  demurrer 
was  interposed,  stating-  seven  different  g-rounds,  but 
with  the  view  we  entertain  of  the  seventh  g-round,  viz. 
that  the  complaint  does  not  state  facts  sufficient  to  con- 
stitute a  cause  of  action,  a  discussion  of  the  other  six 
grounds  is  rendered  unnecessary.  The  question  for 
decision  under  this  ground  of  the  demurrer  is,  can  the 
shares  of  nonresident  stockholders  in  a  bank  org^anized 
under  the  laws  of  this  state,  and  doing  business  in  this 
state,  be  taxed  in  this  state  for  g-eneral,  state,  county, 
and  municipal  purposes  ?  It  is  conceded  by  the  appel- 
lant that  the  weight  of  authority  is  to  the  effect  that 
the  legislature  has  power  to  change  the  situs  of  stocks 
of  nonresidents,  and  bring  them  within  their  own  juris- 
diction for  taxation;  but  it  insisted  that  the  leg"islature 
of  this  state  has  not  attempted  to  do  this.  Section  1  of 
chapter  124,  which  is  the  revenue  law  of  1893,  and 
which  is  the  law  g-overning  this  case  (as  the  same  sections 
were  incorporated  in  the  law  of  1895), provides:  "That 
all  real  and  personal  property  now  existing-,  or  that 
shall  be  hereafter  created  or  brougfht  into  this  state, 
shall  be  subject  to  assessment  and  taxation  for  the 
support  of  the  state  government,  and  for  county,  school, 
municipal  or  such  other  purposes  as  shall  be  desig-nated 
by  law,  upon  equalized  valuations  thereof,  fixed  with 
reference  thereto  on  the  first  day  of  April  at  12  o'clock, 
meridian,  in  each  and  every  year  in  which  the  same 
shall  be  listed,  except  such  property  as  shall  be  ex- 
pressly exempted  therefrom  by  the  provisions  of  law." 
Section   21    of  the  same  act  provides  that:     "All  the 


B  CAS]  TAXATION  3 

Scandinavian-American  Bank  v.  Pierce  County 

shares  of  stock  in  banks,  whether  of  issue  or  not,  exist- 
ing- bv  authority  of  the  United  States  or  of  the    state, 
and   located    within   the   state,  shall  be  assessed  to  the 
owners  thereof  in  the  cities  or  towns  where  such  banks 
are  located,  and  not  elsewhere  ;  in   the    assessment  of 
all  state,    county    and  municipal    taxes    imposed    and 
levied  in  such  place,  whether  such   owner  is  a  resident 
of  said  city  or  town   or  not,  all    such    shares  shall   be 
assessed  at  their  full  and  fair  value   in   money   on  the 
first  day  of  April  in   each  year,  first  deducting-  there- 
from the   proportionate   part  of  the   value  of  the  real 
estate  belong-ing  to  the   bank,    at  the  same  rate,  and  no 
greater,    than    that   at   which    other  moneyed  capital 
n    the    hands    of    citizens    and    subject    to    taxation, 
is    by    law    assessed.     And    the    persons    or    corpo- 
rations who   appear   from    the    records   of   the   banks 
to  be  owners  of  shares  at  the   close  of    the    business 
day   next   preceding-  the    first  day    of  April    in    each 
year  shall    be    taken   and    deemed    to    be   the  owners 
thereof    for    the    purposes    of    this    section."       The 
construction  placed  upon  this  law  by  the  appellant,  if 
we  understand  it,  is  to  the  effect  that,   while  the  law 
requires  that  bank  stocks  which  are  subject  to  taxation 
shall  be  assessed  in  the  city  or  town  where  the  bank 
is  located,  it  does  not  create  or  impose  a  tax  on  stock 
owned  by    nonresidents.     The   law    does    not  declare 
that  all  the  shares  of  stock  in  bank  shall  be  taxed,  but 
that  they  shall  be  assessed,  and  an  arg-ument  is  based 
upon  the  theory   that  assessment  does  not  necessarily 
mean  taxation,  and  it  is  contended  that  the  intention  of 
the  legislature  to  tax  this  property  cannot  be  g-athered 
from  the  act.     But  while  the  arg-ument  advanced  may 
be  ing-enious,    it    is  not,    to   our  mind,  convincing-,  or 
even  plausible.     We  do    not  think    the    lang-uag-e    "all 
the  shares  of  stock  in  banks"  can  be  construed  to  mean 
all  such  shares  as  have  their  situs  within  the  state,  or 
all  such    shares    as   belong-    to    residents    of  the  state. 
This  would  be  a  strained  and  unnatural  construction  to 
place  upon  the  languag-e.     Section  1  provides  "that  all 
real  or  personal  property  now   existing-,    or   that  shall 
be  hereafter  created  or  broug^ht  into  this  state,  shall  be 


4  TAXATION  [vol  I 

Note 

subject  to  assessment  and  taxation."  We  cannot  under- 
stand how  lang-uage  more  sweeping-  or  comprehensive 
could  have  been  used  by  the  leg-islature.  The  shares 
in  question  evidently  fall  within  the  definition  g-iven  of 
personal  property  by  section  3  of  the  act,  so  that  the 
leg-islative  announcement  is  that  the  property  in  ques- 
tion shall  be  subject  to  assessment  and  taxation,  and 
section  21  simply  points  out  the  mode  or  manner  of  se- 
curing- the  taxes  provided  for  in  section  1,  and  especially 
provides  that  this  property  shall  be  assessed  in  the 
city  or  town  where  such  banks  are  located,  whether 
such  owner  is  a  resident  of  such  city  or  town  or  not. 
Following-  the  fundamental  rule  of  statutory  construc- 
tion, and  construing-  all  the  different  sections  of  the  act 
tog-ether,  it  plainly  appears  that  when  the  legfislature 
enacted  section  21,  providing  for  the  assessment  of  the 
shares  of  nonresident  stockholders,  they  had  in  mind 
their  assessment  with  a  view  to  their  taxation.  In  fact, 
the  section  explains  itself  by  using-  the  words  "in  the 
assessment  of  all  state,  county  and  municipal  taxes  im- 
posed and  levied  in  such  place."  This  section  would  be 
the  merest  jargon  if  it  did  not  have  for  its  ultimate  ob- 
ject the  collection  of  the  taxes  on  the  property  assessed. 
And  if  it  is  necessary  to  streng-then  this  view  by  re- 
ference to  the  further  sections  of  the  act,  section  55 
requires  the  assessor  to  make  a  list  of  all  property  as- 
sessed, while  section  64  provides  that  for  the  purpose 
of  raising- a  revenue  for  state,  county,  school,  road,  and 
other  purposes  the  board  shall  levy  a  tax  on  all  taxable 
property  in  the  county  as  shown  by  the  assessment 
roll.  We  think  the  law  is  not  susceptible  of  the  con- 
struction placed  upon  it  by  the  appellant.  The  judg-- 
ment  will  be  affirmed. 

Scott,  C.  J.,  and  Anders,  Gordon,  and  Rbavis, 
JJ.,  concur. 


NOTE. 

Taxation — Shares  Held  by  Non-Residents. — A  state  may  tax  shares 
of  stock  in  domestic  corporations  thoug-h  owned  by  non-residents, 
when  provision  for  such  tax  is  made  by  the  law  under  which  the 
corporation  is  created.     Stockholders  v.  Board,  etc.  (Va.  1891),  13  S. 


B  CAS]  TAXATION  5 

Union  &  Planters'  Bank  z'.  City  of  Memphis 

E.  Rep.  407;  Faxton  v.  McCosh,  12  Iowa  530;  Tappan  v.  Merchants' 
Nat.  Bank,  19  Wall.  (U.  S.)  500;  Nashville  v.  Thomas,  5  Coldw. 
(Tenn.)  600;  Bedford  v.  Mayor,  etc.,  of  Nashville.  7  Heisk.  (Tenn.) 
409;  First  Nat.  Bank  v.  Smith,  65  111.  44.  Contra,  Union  Bank  v.  State, 
9  Yerg.  (Tenn.)  490.  And  see  Cleveland,  etc.,  R.  Co.  v.  Pennsyl- 
vania, 15  Wall.  (U.  S.)  300. 

In  Mayor,  etc.,  of  Baltimore  i>.  Hussej-,  67  Md.  112,  it  was  held 
that  stock  representing-  the  debt  of  the  city  of  Baltimore,  owned  by 
a  resident  of  New  York,  was  not  taxable  by  the  State  of  Maryland. 

In  Catlin  v.  Hull,  21  Vt.  152,  and  Redmond  v.  Rutherford  Co.,  87 
N.  Car.  122,  it  was  held  that  choses  in  action  belonging  to  a  non- 
resident, in  the  hands  of  an  agent  within  the  state,  may  be  taxed. 
This  latter  case  quoted  the  opinion  of  Chief  Justice  Pearson,  pro- 
nounced in  Alvany  v.  Powell,  2  Jones  Eq.  (N.  Car.)  51,  to  the  effect 
that  the  doctrine  that  personal  property  is  deemed  to  follow  the 
person  of  the  owner  "is based  upon  a  fiction  which  has  no  application 
to  the  question  of  revenue."  A  municipality  has  no  authorit3'  to 
tax  shares  of  stock  in  corporations  within  its  jurisdiction,  owned 
by  persons  residing  elsewhere,  unless  such  authority  is  expressly 
conferred  by  statute.  Evansville  v.  Hall,  14  Ind.  27;  Conwell  v, 
Connersville,  15  Ind.  150;  Craft  v.  Tuttle,  27  Ind.  332. 

In  Griffith  v.  Watson,  19  Kan.  23,  it  was  held  that  shares  of  stock 
in  a  gas  company  in  the  city  of  Lawrence,  owned  by  a  resident  of 
Wakarusa  Township,  could  not  be  taxed  by  the  city  of  Lawrence 
where  he  did  not  reside.  The  court  said:  "Said  shares  of  stock 
must  be  considered  as  personal  property  .  .  .  and  must  therefore 
be  taxed,  if  taxed  at  all,  to  the  holders  thereof  where  such  holders 
reside." 

In  Gordon  v.  Mayor,  etc.,  of  Baltimore,  5  Gill  (Md.)  231,  it  was 
held  that  a  general  taxing  power,  "granted  in  the  most  comprehen- 
sive terms,  and  without  any  limitation  as  to  the  objects  on  which  the 
power  is  to  operate,"  was  a  sufficient  authorit3^  for  levying  a  mu- 
nicipal tax  upon  the  bank  stock  of  a  corporation  in  the  city  owned 
by  a  non-resident. 


Union  &  Planters'  Bank 
City  of  Memphis  et  al. 

{Supreme  Court  of  Te>inessee,  April  2,  1S9S.) 

Taxation  of  Banks— Capital  Stock— Charter  Exemptions -Assess- 
ment.*— Though  the  charter  of  a  banking  corporation  provides  that 
"said  company  shall  pay  to  the  state  an  annual  tax  of  one  half  of 
■one  per  cent,  on  each  share  of  stock  subscribed,  which  shall  be  in 
lieu  of  all  other   taxes,"  its   capital  stock  is    not   thereb3'  exempted 

*See  note  at  end  of  case. 


6  TAXATION  [vol  I 

Union  &  Planters'  Bank  v.  City  of  Memphis 

from  taxation  ;  but  the  leg-islatiire  has  made  no  provision  for  its- 
assessment. 

Same — Privilege  Tax.— Nor  does  such  provision  exempt  the  bank 
from  paying-  a  privileg^e  tax  upon  its  capital  stock  to  the  defendant 
municipality. 

Res  Adjudicata.— In  deciding-  whether  or  not  a  statute  impairs  the 
obligations  of  a  state  contract,  the  supreme  court  is  not  bound  by 
its  previous  decisions,  except^  when  they  have  been  so  long  and 
firmly  established  as  to  constitute  a  rule  of  property  ;  and  the  case 
of  the  City  of  Memphis  v.  Union  &  Planters'  Bank,  91  Tenn.  551,  19 
S.  W.  758,  is  not  conclusive. 

Same. — The  plea  of  res  judicata  in  tax  cases  is  to  be  limited  to  the 
taxes  actually  in  litig-ation,  and  is  not  conclusive  in  respect  of  taxes 
assessed  for  other  and  subsequent  years. 

Limitations. — The  defendant  is  entitled  to  collect  a  privileg-e  tax 
for  the  six  years  next  preceding-  the  filing  of  the  bill  upon  the  capi- 
tal stock  of  the  complainant  bank,  the  three  year  limitation  under 
act  1895  (c.  5,  subsec.  7)  having  no  application. 

Appeal  by  defendants  from  Shelby  county  chancery 
court.     Reversed. 

Metcalf  d'    Walker,  for  appellants. 

Carroll,  Chalmers  &  MeKellar,  for  appellee. 

McAlisTER,  J.  This  record  presents  a  question  of 
taxation.  Complainant  bank  filed  its  bill  in  the  chan- 
cery court  of  Shelby  county  to  enjoin  the  city  of  Hem- 
phis  and  county  of  Shelby  ag-ainst  the 
collection  of  taxes  on  its  capital  stock  for  the 
years  18%  and  1897.  Two  g-rounds  of  relief  were 
outlined  in  the  bill,  viz\  First.  That  the  capital 
stock  of  said  Union  &  Planters'  Bank. is  exempt  from 
g-eneral  taxation  by  its  charter  or  act  of  incorporation, 
which  provides  that  "said  company  shall  pay  to  the 
state  an  annual  tax  of  one  half  of  one  per  cent,  on  each 
share  of  stock  subscribed,  which  shall  be  in  lieu  of  all 
other  taxes, "  and  that  this  exemption  has  been  ad  judg-ed 
by  this  court  in  two  cases,  which  have  the  force  of  res 
adjiidieata.  Second.  That,  conceding"  the  taxability 
of  the  capital  stock,  the  leg"islature  has  made  no  pro- 
vision for  its  assessment,  but  on  the  contrary  has  ex- 
pressly declared,  by  section  10  of  the  act  of  1895,  that 
"no  tax  shall  hereafter  be  assessed  upon  the  capital 
stock  of  any  bank,  banking-  association  or  loan,  trust,. 


B  CAS]  TAXATION  T 

Union  &  Planters'  Bank  v.  City  of  Memphis 

insurance  or  investment  companies,  but  the  sharehold- 
ers in  such  bank  or  other  associations  shall  be  assessed 
and  taxed  upon  the  market  value  of  their  shares  of 
stock  therein."  The  city  and  county  answered  the 
bill;  denying  the  want  of  powder  in  the  assessing- 
officers  to  assess  the  capital  stock  of  complainant  bank, 
and  denying,  further,  that  the  charter  of  said  bank 
exempted  its  capital  stock  from  taxation,  or  that  said 
matter  is  res  adjiidicata,  or  that  defendants  are  estop- 
ped by  judgment.  The  city  and  county  also  filed  cross 
bills  for  the  collection  of  their  taxes, — the  amounts  due 
the  city  for  the  year  1897,  and  the  county  for  the 
year  1896,  and  also  for  the  collection  of  city  privilege 
taxes.  It  was  admitted  in  a  stipulation  of  agreed  facts 
that  the  capital  stock  of  complainant  bank  had  been 
assessed  by  the  board  of  equalization  of  Shelby  county 
for  the  year  1896  at  $317,000,  and  that  complainant 
bank  could  not  rightly  contest  the  assessment,  so  far 
as  the  amount  thereof  was  concerned.  The  comptrol- 
ler's certificate  was  attached  to  the  stipulation  showing 
the  payment  annually  of  the  charter  tax  of  one  half  of 
1  per  cent.  The  chancellor,  upon  the  hearing,  was  of 
opinion  the  bank  w^as  not  liable  for  any  of  said  taxes, 
and  thereupon  dismissed  defendants'  cross  bills,  and 
perpetuated  the  injunction.  Defendants  appealed,  and 
have  assigned  errors  as  follows,  to  wit:  "(1)  The 
court  below  erred  in  holding  that  it  was  bound  to  fol- 
low the  case  of  City  of  Memphis  v.  Union  &  Planters' 
Bank,  91  Tenn.  551,  19  S.  W.  758,  and  to  decree  in 
favor  of  the  exemption  from  general  taxation  of  the 
capital  stock  of  the  complainant  bank.  It  should  have 
been  decreed  that  the  capital  stock  was  subject  to 
general  taxation.  (2)  In  any  event,  the  court  should 
have  held  that  the  judgment  in  the  said  case  of  City  of 
Memphis  v.  Union  &  Planters'  Bank,  sufra,  was  not 
res  adjHdicata'ii'&?ig'6\n^i  the  state  or  county;  the  county 
notbeinga  party  to  that  proceedingat  all,  and  the  state 
a  nominal  party  only, — the  only  real  party  thereto  being 
the  City  of  Memphis.  (3)  It  should  have  been  decreed 
that  the  capital  stock  was  legally  assessed  at  8217,000; 


8  TAXATION  [vol  I 

Union  &  Planters'  Bank  v.  City  of  Memphis 

that  the  amounts  due  to  the  city  and  county,  respect- 
ively, were  as  shown  by  the  exhibits  to  the  bill;  and 
judg-ment  in  favor  of  the  city  and  count3%  respectivel3% 
should  have  been  rendered  on  the  cross  bill.  (4)  The 
bank  should  have  been  adjudg-ed  liable  to  the  city  for 
an  annual  privileg-e  tax  of  $600,  under  the  provisions 
of  the  act  of  1889  (section  2,  subsec.  7),  by  which  the 
leofislature  enacted  a  municipal  privileg^e  tax  on  each 
bankinof  institution  of  $1  on  every  $1,000  of  capital 
stock  paid  in;  the  capital  stock  of  the  complainant  bank 
bein^r  SG00,000." 

The  first  question  to  be  decided  is  whether  the  prop- 
erty now   soug"ht   to    be  taxed    has   been   assessed;  for 
assessment  must  precede  taxation,  and  is  an 

Taxatiouor  indispeusablc  couditiou  of  the  rigfht  to  col- 

Bants— capital      1     ,        ,  »        1        1        J   i    1     ji 

stock-Charter      lect  a  tax.     As  already  stated,   the  assess- 

As\mm'eiit.~  meut  act  of  1895  provides  that  "no  tax 
should  hereafter  be  assessed  upon  the  capi- 
tal stock  of  any  bank  or  banking-  association,  but  that 
the  shares  of  stock  should  be  assessed  to  the  individual 
shareholder."  Here  is  a  direct  legislative  prohibition 
ag-ainst  any  assessment  of  capital  stock  to  the  corpora- 
tion for  purpDses  of  taxation,  and  a  different  system 
for  the  assessment  of  such  stock  is  provided.  The 
assessment  of  the  capital  stock  of  complainant  bank  to 
the  corporation  was  made  by  the  board  of  equalization 
of  Shelby  county,  under  section  51,  c.  120,  Acts  1895, 
which  provides  "that  the  county  board  of  equalization 
shall  have  the  power  to  add  to  the  assessment  lists  an}^ 
property  subject  to  taxation  and  not  assessed  b}^  the 
regular  assessor."  The  act  of  1895  further  provides, Z7>: 
that  all  property — real,  personal,  and  mixed — shall  be 
assessed  for  taxation  for  state,  county,  and  municipal 
purposes,  except  such  as  is  declared  exempt  in  the 
next  section.  Laws  1895,  p.  203,  §  1.  After  enumerating- 
the  exemption,  it  provides,  "All  other  personal  property 
whether  belonging-  to  individuals,  corporations  or 
firms."  Id.  p.  306,  §  9subd.  9.  It  is  insisted  on  behalf  of 
the  city  that  these  general  provisions  of  the  act  of  1895 
are  amply  sufficient  to  justify  and   require  the   assess- 


B  CAS]  TAXATION  9 

Union  &  Planters'  Bank  z'.  City  of  Memphis 

Tuent  of  the  capital  stock  of  this  bank,  and,  such  being- 
the  case,  all  particular  provisions  in  hostility  to  the  con- 
stitutional provision  that  all  property  must  be  taxed 
would  fall.  The  constitution  ordains  that  all  property 
shall  be  taxed  according-  to  its  value, — that  value  to  be 
ascertained  in  such  a  manner  as  the  legislature  shall  di- 
rect, so  that  taxes  shall  be  equal  and  uniform  throug-h- 
out  the  state.  Article  2,  §  28.  It  is  true  that  under 
well-settled  decisions  of  this  court  the  capital  stock  be- 
longfing-  to  the  corporation  and  the  shares  of  stock 
owned  by  the  stockholder  are  separate  and  distinct  sub- 
jects of  taxation,  and  the  taxation  of  one  is  not  the  tax- 
ation of  the  other  ;  nor  is  the  assessment  of  both  sub- 
jects duplicate  taxation.  Railroad  Co.  v.  Morrow,  87 
Tenn.  417,  11  S.  W.  348  ;  State  v.  Bank  of  Commerce, 
95  Tenn.  226,  31  S.  W.  993.  The  value  of  such  stock, 
under  the  plain  provision  of  the  constitution,  is  to  be 
ascertained  in  such  manner  as  the  leg-islature  shall  di- 
rect. The  leg-islature,  in  its  wisdom,  has  provided  for 
the  assessment  of  stock  to  the  shareholder,  and  has  de- 
termined that  no  tax  shall  be  assessed  upon  the  capital 
of  the  corporation.  It  was  clearly  within  the  power  of 
the  legislature  to  prescribe  this  method  of  taxing-  bank 
stock,  and  until  the  system  is  chang-ed  no  ad  valoreyn 
tax  can  be  collected  from  the  corporation  on  the  capital 
stock.  The  mandate  of  the  constitution  requiring-  un- 
iform taxation  of  uniform  values  is  not  self-executing-, 
but  depends  for  its  enforcement  upon  appropriate  leg-- 
islation.  This  very  subject  is  illustrated  by  a  decision 
of  this  court  in  which  the  precise  point  was  adjudg-ed. 
In  State  v.  Butler,  86  Tenn.  631,  8  S.  W.  586."  which 
was  a  proceeding-  for  the  collection  of  taxes  claimed  to 
be  due  the  city  of  Memphis  from  the  Bank  of  Com- 
merce, it  appeared  that  the  assessment  was  upon  the 
capital  stock  of  the  bank.  The  court  held  that  "no 
recovery  could  be  had  upon  such  an  assessment,  since 
the  act  of  1873  provided  that  'no  tax  shall  hereafter  be 
assessed  upon  the  capital  of  any  bank  or  banking-  as- 
sociation' etc.,  'but  the  stockholders  in  such  banks 
*  *  *  shall  be  assessed  and  taxed  on  the  value  of  their 


10  TAXATION  [vol  I 

Union  &  Planters'  Bank  v.  City  of  Memphis 

shares  of  stock  therein.' "  Chapter  118,  §  8.  This 
decision  has  remained  unreversed  and  unchalleng-ed 
from  that  time  to  the  present. 

It  is  also  claimed  that  said  bank  is  liable  to  the  city 
of  Memphis  for  certain  privileg-e  taxes.  In  the  case  of 
City  of  Memphis  v.  Union  &  Planters'  Bank,  91  Tenn. 
556,  19  S.  W.  760,  an  effort  was  made  to  col- 
same-Priviie?e  jg^^-  privileg-e  taxcs  from  this  bank  for  the 
years  1889,  1890.  and  1891,  inclusive,  and 
this  court  ad  judg-ed  the  bank  not  liable.  Judge  Cald- 
well said:  "Complainant  seeks,  in  addition  to  what  has 
already  been  stated,  to  recover  from  the  bank  SI, 800,  as 
privileg-e  taxes  for  the  years  1889,  1890,  and  1891. 
These  taxes  are  claimed  from  the  corporation  for  the 
right  of  exercising-  its  franchises, — for  the  privilege  of 
doing-  a  banking-  business.  Manifestly,  the  charter  tax 
was  intended  to  cover  this  right  or  privilege.  The  lan- 
g-uag-e  of  the  charter  implies  that  in  consideration  of 
the  public  g-ood,  and  the  payment  of  the  tax  therein 
specified,  the  state  will  allow  the  corporation  to  exercise 
the  franchises  granted,  without  further  taxation," — 
citing-  City  of  Memphis  v.  Hernando  Ins.  Co.,  6  Baxt. 
527  ;  Union  Bank  v.  State,  9  Yerg-.  490.  In  reply  to 
this  adjudication,  counsel  for  the  city  argues,  viz: 
"It  is  not  in  the  least  denied,  on  our  part,  that  this 
court  has  over  and  over  again,  under  just  such  a  char- 
ter as  this,  held  that  the  corporation  was  not  liable  to 
a  privileg-e  tax.  This  line  of  decisions  beg-an  with  the 
case  of  Union  Bank  v.  State,  in  9  Yerg-.  490,  and  runs 
through  all  the  decisions  on  that  subject  down  to  and 
including-  the  cases  in  91  Tenn.  It  is,  however,  never 
to  be  forgotten  that  throughout  this  whole  line  of  de- 
cisions this  court  was  uniforml}-  and  consistently  hold- 
ing that  under  such  a  charter  as  this  the  charter  tax 
was  laid  on,  and  the  exemption  was  of,  the  corporation 
and  its  capital  stock,  and  that  the  shares  of  stock  v^'ere 
taxable.  All  that  line  of  decisions  has  now  been  reversed 
by  the  supreme  court  of  the  United  States  ;  that  court 
holding-  that,  under  the  proper  reading  and  legal  effect 
of  the  charter,  the  charter  tax  is  on,  and  the  exemption 


B  CAS]  TAXATION  11 

Union  &  Planters'  Bank  :'.  Cit}'  of  Memphis 

is  of,  the  shares  of  stock,  and  that  the  corporation  gfets 
no  exemption  whatever  under  the  charter.  If  it  be  true, 
therefore,  as  it  seems  undoubtedly  to  be,  that  the  cap- 
ital stock  is  taxable,  for  the  reason  that  the  corporation 
g-ets  no  exemption  under  the  charter,  there  would  seem 
to  be  no  reason  why  the  corporation  should  not  be  li- 
able to  a  privileg"e  tax  as  well  as  to  an  ad  valorem  tax. 
The  court  will  remember  that  in  the  series  of  cases 
that  w'ere  before  it  on  demurrer  in  91  Tenn.,  and  on 
final  hearing-  in  97  Tenn.,  the  privileg^e  tax  under  the 
statute  above  referred  to  was  ad judg-ed  valid  in  ever\' 
case  where  it  was  properly  claimed  in  the  pleadings, 
and  in  which  it  was  held  that  the  corporation  had  no 
exemption.  There  is  no  reason  why  the  same  rule  of 
taxation  should  not  apply  to  the  complainant  bank." 
The  decision  of  this  question  is  therefore  necessarily 
dependent  on  the  determination  of  the  question  whether 
the  capital  stock  of  said  bank  is  now  liable  to  taxation. 
It  is  insisted  in  bar  of  the  claim  of  the  city  of  Mem- 
phis that  the  question  has  already  been  adjudicated, 
and  two  pleas  of  res  ad  judicata  are  interposed ,  ,.•.•.» 

VIZ'.  Ij  irst,  the  decrees  ot  the  supreme 
court  of  Tennessee  in  the  case  of  State  v.  Butler  (April 
term,  1884)  13  Lea,  400,  wherein  it  w^as  adjudg-ed  that 
the  provisions  in  its  act  of  incorporation  that  the  com- 
pany shall  pay  to  the  state  an  annual  tax  of  one-half  of 
1  per  cent,  on  each  share  of  capital  stock  subscribed, 
w^hich  shall  be  in  lieu  of  all  other  taxes,  relieves  it  of 
the  payment  of  the  taxes  now  soug-ht  to  be  recovered  ; 
second,  that  the  decree  of  this  court  in  the  case  of  City 
of  Memphis  t- .  Union  &  Planters'  Bank,  reported  in  91 
Tenn.  546,  19  S.  W.  758,  adjudg-ed  that  the  commuted 
tax  prescribed  by  the  charter  was  the  g-rant  of  an  im- 
munity to  said  bank  from  the  payment  of  ad  valorem 
taxes  to  the  city  of  Memphis  upon  its  capital  stock. 
The  broad  proposition  asserted  by  counsel  for  complain- 
ant bank  is  that  this  court  has  by  its  decrees  in  State 
V.  Butler,  13  Lea,  400,  and  in  city  of  Memphis  v.  Union 
&  Planters'  Bank,  91  Tenn.  551,  19  S.  W.  758,  conclu- 
sively adjudg-ed  that  the  charter  of  complainant  bank 


12  TAXATION  [vol  I 

Union  &  Planters'  Bank  v.  Citj-  of  Memphis 

exempts  both  its  capital  stock  and  shares  of  stock  from 
o-eneral  taxation.  It  is  not  insisted  by  the  bank  that 
there  is  a  judg-ment  estopped  ag-ainst  the  county,  nor 
could  such  an  insistence  prevail,  since  the  county  was 
not  a  party  to  the  two  cases  now  relied  on  as  adjudica- 
ting- the  question  here  presented.  It  is  well  known 
that  the  opinion  of  this  court  in  City  of  Memphis  v. 
Union  &  Planters'  Bank,  91  Tenu.  551,  19  S.  W.  758, 
was  broug-ht  about  by  what  this  court  deemed  to  be  the 
true  construction  and  effect  of  the  opinions  in  the  Far- 
ring-ton  Case,  95  U.  S.  679,  and  the  Bank  of  Commerce 
Case,  104  U.  S.  493.  In  City  of  Memphis  v.  Union  & 
Planters'  Bank,  this  court  said,  2'i2:  "Considering-  the 
decision  of  the  United  States  supreme  court  in  Farring- 
ton  V.  Tennessee,  95  U.  S.  679,  and  Bank  v.  Tennessee, 
104  U.  S.  493,  tog-ether,  and  g-iving-  them  the  controll- 
ing- weight  to  which  they  are  entitled,  it  cannot  be  held 
otherwise  than  that  the  charter  tax  of  one-half  of  one 
per  cent,  is  in  lieu  of  all  other  taxes,  whether  ag-ainst 
the  bank,  on  its  capital  stock,  or  ag-ainst  owners,  on 
shares  of  stock.  Under  the  construction  there  g-iven, 
the  charter  exemption  includes  both."  It  was  added 
that,  "as  an  origfinal  question,  this  court  would  hold  as 
held  in  City  of  Memphis  v.  Farring-ton,  8  Baxt.  539, 
and  charg-e  the  stockholders  with  an  ad  valorem  tax, 
but  is  constrained  to  hold  both  exempt,  under  the  con- 
trolling- authority  of  the  United  States  supreme  court 
decisions."  Since  that  time,  in  the  Union  &  Planters' 
Bank  Case,  161  U.  S.  149,  16  Sup.  Ct.  558,  the  supreme 
court  of  the  United  States  held  that  the  Farrington 
Case,  properly  understood,  did  not  hold  that  both  the 
shares  and  capital  stock  were  exempt  from  taxation. 
It  was  further  held  that  the  charter  tax  was  on  the 
shares  of  stock,  and  such  shares  were  exempt  from 
g-eneral  taxation.  It  is  nevertheless  urg-ed  on  behalf  of 
the  bank  that  the  City  of  Memphis  t'.  Union  &  Planters' 
Bank  Cast  is  conclusive  in  its  favor,  regardless  of  the 
reasons  that  controlled  the  court  in  pronouncing  judg- 
ment, and  that  it  is  conclusive,  also,  against  taxes  for 
other  years.     As  is  well  said  in  the  brief  for  the  cit\^  : 


B  CAS]  TAXATION  13 

Union  &  Planters'  Bank  v.  City  of  Memphis 

"It  would  indeed  be  strang-e  if,  under  a  constitution 
such  as  ours,  a  mistaken  judgfment  of  this  court,  de- 
clared in  most  emphatic  terms  not  to  be  its  own  judg^- 
ment,  but  to  have  been  rendered  in  supposed  obedience 
to  that  of  an  appellate  tribunal, — the  United  States 
supreme  court, — can  be  invoked  as  a  judgment  estoppel, 
now  that  the  same  appellate  tribunal  has  decided  that 
identical  question  in  favor  of  the  state  and  ag-ainst  the 
bank,  and  that  this  court  was  mistaken  in  its  readingr 
of  their  former  opinions."  It  is  argued,  however,  by 
counsel  for  the  bank,  that  the  opinion  and  judo^ment  of 
the  United  States  supreme  court  in  Shelbv  Co.  v. 
Union  &L  Planters'  Bank.  161  U.  S.  149,  16  Sup.  Ct. 
558,  did  not  adjudg-e  the  capital  stock  liable  to  taxation. 
The  argfument  for  the  bank  is  that  the  single  question 
involved  therein  was  the  taxability  of  the  surplus,  and 
that  ever3^thing-  said  in  the  opinion  outside  of  this  ques- 
tion was  obiter.  We  understand  that  court  to  have 
decided,  in  the  case  mentioned,  that  the  surplus  and 
undivided  profits  of  said  bank  w^ere  not  exempt,  for  the 
reason  that  the  capital  stock  of  said  bank  was  not 
exempt.  The  court  said,  t7>  :  "There  are  two  g-rounds, 
either  of  which,  if  decided  in  favor  of  the  appellants  in 
this  case,  would  result  in  upholding-  the  validity  of  the 
tax  upon  the  surplus  :  First,  if  it  should  be  held  that, 
by  the  true  interpretation  of  the  charter,  the  exemption, 
while  applying-  to  the  shares  of  stock  in  the  hands  of 
the  shareholders,  does  not  extend  to  the  corporation 
itself,  the  tax  would  be  invalid  ;  second,  even  if  the 
tax  on  the  capital  stock  were  void,  that  upon  the  sur- 
plus mig-ht  still  be  upheld,  on  the  authority  of  the  case 
of  Bank  of  Commerce  v.  Tennessee,  161  U.  S.  134,  16 
Sup.  Ct.  456  ;  Id.,  99  Tenn.  645,  36  S.  W.  719.  We 
have  already  held  in  that  case  that  a  tax  on  the  surplus 
was  valid,  but  the  question  whether  a  tax  on  the  capital 
stock  of  the  bank  was  valid  could  not  be  raised  there, 
because  the  case  was  before  us  on  writ  of  error  taken 
to  a  state  court,  and  the  question  in  the  state  court  was 
decided  in  favor  of  the  exemption  claimed  by  the  bank. 
This  being-  an  appeal  from  a  judgment  of  the  United 


14  TAXATION  [vol  I 

Union  &  Planters'  Bank  v.  City  of  Memphis 

States  circuit  court,  both  questions  are  open  for  our 
decision.  We  think  it  therefore  proper  to  here  decide 
the  question  first  above  stated.  Various  decisions  in 
the  courts  of  Tennessee  have  been  cited  by  counsel  on 
both  sides,  as  to  the  meaning-  of  the  exemption  clause, 
— whether  or  not  it  covered  the  capital  stock  and  the 
shares  also.  Generally  the  courts  of  that  state  held, 
before  the  decision  of  this  court  of  Farrington  v.  Ten- 
nessee, 95  U.  S.  679,  that  the  charter  tax  was  laid  on 
the  corporate  capital  stock,  and  the  exemption  was  of 
that  stock  from  any  further  tax.  Subsequently  to  the 
decision  in  that  case  the  state  courts  have  held  that 
under  the  construction  g-iven  to  the  clause  in  the  Far- 
ring-ton  Case,  and  in  Bank  of  Commerce  v.  Tennessee, 
104  U.  S.  493,  the  tax  was  on  the  shares,  and  the 
exemption  covered  both  the  capital  stock  and  the  shares 
thereof.  The  decision  g-iving-  exemption  to  both  classes 
of  property  was  adjudg-ed  alone  upon  the  authority 
cited.  In  such  a  case  as  this,  where  we  are  to  construe 
the  meaning-  of  the  clause  of  the  statute  as  to  what  con- 
tract is  contained  therein,  and  whether  the  state  has 
passed  any  law  impairing-  its  obligation,  we  are  not 
bound  by  the  previous  decisions  of  the  state  courts, 
except  when  they  have  been  so  long-  and  firmly  estab- 
lished as  to  constitute  a  rule  of  property  (which  is  not 
the  case  here);  and  we  decide  for  ourselves,  indepen- 
dently of  the  decisions  of  the  state  courts,  whether 
there  is  a  contract,  and  whether  its  oblig-ation  is  im- 
paired. Railroad  Co.  t- .  Palmes,  109  U.  S.  244,  256,  3 
Sup.  Ct.  193;  Railroad  Co.  v.  Dennis,  116  U.  S.  665-667; 
6  Sup.  Ct.  625;  Railroad  Co.  v.  Tennessee,  153  U.  S. 
486,  492,  14  Sup.  Ct.  968."  The  court,  after  a  review 
and  discussion  of  the  cases,  held,  viz:  "This  deter- 
mines the  liability  of  the  capital  stock  of  the  Union  & 
Planters'  Bank  to  taxation,  and,  of  course,  it  overrules 
any  claim  on  the  part  of  that  bank  for  exemption  from 
taxation  of  its  surplus  or  accumulated  profits."  If, 
therefore,  the  principle  of  judg-ment  estoppel  is  to  be 
invoked,  the  last  judg-ment  of  the  highest  appellate 
tribunal  determines  the  taxability  of  said  capital  stock. 


B  CAS]  TAXATION  15 

Notes 

Again,  we  think  the  plea  of  7'es  adjiidicata  in  tax 
cases  is  to  be  limited  to  the  taxes  actually  in 
litigation,  and  is  not  conclusive  in  respect  of 
iaxes  assessed  for  other  and  subsequent  years.  Since 
this  is  not  a  federal  question,  we  decline  to 
follow  the  ruling  in  City  of  New  Orleans  t'. 
Citizens'  Bank,  167  U.  S.  371,  17  Sup.  Ct.  905,  in  which 
it  was  held,  by  a  majority  opinion,  that  a  judgment  in 
a  tax  case  is  as  conclusive  of  the  taxes  of  other  years 
as  it  is  of  the  taxes  for  the  years  actually  involved. 
In  State  v.  Bank  of  Commerce,  95  Tenn.  231,  31  S.  W. 
993,  we  said,  "These  suits  being  for  other  years  than 
those  sued  for  in  the  Farrington  Case,  that  decision  is 
not  (as  an  adjudication)  conclusive  of  the  present  case;" 
citing  Cromwell  v.  County  of  Sac,  94  U.  S.  351;  Nes- 
bitr.  Independent  Dist,  144  U.  S.  610,  12  Sup.  Ct. 
746;  Railroad  Co.  v.  Alsbrook,  146  U.  S.  279,  13  Sup. 
Ct.  72;  Railroad  Co.  v.  Missouri,  152  U.  S.  301,  14  Sup. 
Ct.  592.     We  adhere  to  that  ruling. 

The  result  is  that  in  our  opinion  the  capital  stock  of 
this  bank  is  not  exempt  from  taxation,  but  is  not  liable 
in  the  present  case,  because  the  legislature  has  made 
no  provision  for  its  assessment.  The  city, 
however,  is  entitled  to  collect  its  privilege 
taxes  for  six  years  next  preceding  the  filing  of  the  bill. 
The  three-years  limitation  under  the  act  of  the  extra 
session  of  1895  (chapter  5,  subsec.  7)  has  no  application. 
That  was  a  general  revenue  law  of  the  state,  and  can- 
not operate  as  a  bar  to  a  claim  by  the  city  for  its  priv- 
ileg-e  taxes.  Such  claim  is  barred  only  to  the  extent 
that  it  falls  within  the  general  statute  of  limitations  as 
to  taxes  found  in  chapter  24  of  the  Acts  of  1885,  under 
which  all  taxes  are  barred  unless  suit  is  brought  "with- 
in six  years  from  the  first  of  January  of  the  year  for 
which  such  taxes  accrued."  The  decree  of  the  chan- 
cellor is  reversed,  and  a  decree  will  be  entered  in  con- 
formity with  this  opinion. 

NOTES. 

Taxation  of  Corporations — Effect  of  Exemption  of  Stock. — It  is 
very  generally  held  that  an  exemption  of  the  shares  of  stock  from 
taxation  exempts  the  corporate  property,  franchises,  capital  stock. 


16  USURY  [vol  I 

Farrow  v.  First  Nat.  Bank 

Cook  on  Stock  and  Stockholders  (2d  ed.) ,  §  568  ;  Cooley  on  Taxation 
(2d  ed.)  213;  Baltimore  v.  Baltimore,  etc.,  R.  Co.,  6  Gill  (Md.)  288; 
48  A.m.  Dec.  531;  State  v.  Wilson,  52  Md.  638;  Frederick  County  v. 
Farmers',  etc.,  Nat.  Bank,  48  Ind.  117;  Anne  Arundel  County  z'. 
Annapolis,  etc.,  R.  Co.,  47  Md.  592;  Richmond  v.  Richmond,  etc.,  R. 
Co.,  21  Gratt.  (Va.)  604;  Scotland  County  v.  Missouri,  etc.,  R.  Co., 
65  Mo.  123  ;  Bank  of  Cape  Fear  v.  Edwards,  5  Ired.  (N.  Car.)  516. 
See  also  Middlesex  R.  Co.  v.  Charleston,  8  Allen  (Mass.)  330. 

And  in  Foster  v.  Stevens,  63  Vt.  175,  it  was  held  that  a  statute 
providing'  for  a  direct  tax  upon  the  capital  of  a  bank,  is  a  tax  upon 
the  shares  of  stock  held  by  its  stockholders.  See  also  Bug-bee  v. 
Stevens,  63  Vt.  185. 

Same^ — Same — Contra. — In  the  case,  however,  of  Wilmington, 
etc.,  R.  Co.  V.  Reid,  64  N.  Car.  226,  it  was  held  that  an  exemption  of 
shares  of  stock  does  not  exempt  the  corporate  franchise  from  taxa- 
tion. Raleig-h,  etc.,  R.  Co.  v.  Reid,  64  N.  Car.  155;  and  in  State  v. 
Petway,  2  Jones,  Eq.  (N.  Car.  396,  it  was  held  that  a  charter  provi- 
sion that  the  shares  of  stock  should  be  taxed  a  certain  amount,  did 
not  prevent  a  tax  on  dividends. 

Same — Same — License  Tax. — In  New  Orleans  v.  New  Orleans 
Canal,  etc.,  Co.,  32  La.  Ann.  105,  an  exemption  of  bank  stock  from 
taxation  was  held  not  to  preclude  a  license  tax. 


Farrow 


First  Nat.  Bank. 

{Court  of  Appeals  of  Kentucky,  Nov.  lo,  i8g8.) 

Usury — Remedies.*  -In  an  action  on  a  promissory  note  by  a  na- 
tional bank,  where  usury  to  a  certain  amount  is  pleaded  under  a 
state  statute,  and  admitted,  a  judi^ment  for  plaintiff  embracing  the 
whole  amount  sued  for  is  erroneous,  the  remedy  given  by  the  na- 
tional banking  act  for  forfeiture  of  all  interest  or  recovery  of  double 
the  usury  not  being  exclusive. 

Appeal  by  defendant  from  Mason  county  circuit 
court.     Reversed. 

C.  D.  Nexvell,  Cole  &  So)i,  and  E.  L.  WorthingtoUy 
for  appellant. 

Garrett  S.   Wall^  for  appellee. 

White,  J.  The  appellee  broug-ht  this  action  in  the 
Mason  circuit    court    ag-ainst    the    appellant    and    one 

*See  note  at  end  of  case. 


B  CAS]  USURY  IT 

Farrow  v.  First  Nat.  Bank 

Champe  Farrow  on  a  note  executed  to  the  appellant  for 
S671.65.  The  appellant  filed  answer,  admitting-  the 
execution  of  the  note,  and  pleaded  that  the  note  con- 
tained usury  by  being-  renewed  every  four  months  at  8- 
per  cent,  interest,  from  1878  to  1879,  except  that  a. 
part  of  the  same  was  for  corn.  The  reply  denied  the 
renewals  of  any  note,  but  said  the  note  was  for  loaned 
m'  ney,  g-iving- dates  and  details,  admitting-  that  interest 
at  8  per  cent,  had  been  paid  to  some  extent,  and  ad- 
mitted that  interest  in  excess  of  6  per  cent,  had  been 
collected  to  the  amount  of  $6.45.  On  motion  of  appel- 
lant this  cause  was  transferred  to  equity,  and  referred 
to  the  master  commissioner  for  proof  as  to  the  amount 
of  usur3^  No  proof  was  heard  by  the  commissioner, 
and  he  reported,  as  the  pleading-s  showed,  that  there 
was  usury  to  the  extent  of  $6.45.  Exceptions  were 
filed  to  the  report  by  appellant  in  November,  1895. 
In  February,  1896,  the  appellee  sugg-ested  the  death 
of  Champe  Farrow,  and  asked  that  the  case  abate  as 
to  him,  and  the  court  overruled  the  exceptions  to  the 
commissioner's  report.  Appellee  then  filed  exceptions 
to  the  report  as  to  the  allowance  of  any  usury.  The 
court  sustained  the  exceptions  of  appellee,  and  ren- 
dered judg-ment  for  the  full  amount  of  the  note  sued 
on,  without  any  deduction  or  diminution  for  usury  ; 
the  court,  in  its  judgment  and  opinion,  deciding-  that, 
appellee  being-  a  national  bank,  the  plea  of  usury  was 
bad,  and  that,  if  anv  usury  had  been  paid  on  the  renew- 
als, the  amount  could  be  recovered  only  under  the 
national  banking-  act,  and  that  appellant  could  not 
plead  the  state  usury  laws  as  a  defense.  From  this 
judg-ment  the  appeal  is  prosecuted. 

We  are  of  the  opinion  that  the  judg-ment  rendered  is 
erroneous  in  that  it  was  not  purg-ed  of  usur}-.  The 
answer  pleads  and  the  reply  admits  usury  to  the  extent 
of  $6.45,  and  this  amount  should  have  been  purged 
from  the  note.  The  court  below  was  evidently  of 
opinion  that  a  plea  of  usury  under  the  state  statute 
was  not  good  as  against  a  national  bank,  and  that  the 
remedy  g-iven  by  the  national  banking-  act  for  forfeiture- 


18  USURY  l'^^OL  I 

Note 

of  all  interest  or  recover}^  of  double  the  usury  was 
exclusive.  In  this,  we  think,  he  was  mistaken.  Appel- 
lant had  a  perfect  rig^ht  to  either  remedy,  and  by  his 
answer  elected  to  plead  under  the  state  statute,  and, 
the  usury  being-  admitted  by  the  reply,  it  was  error  to 
render  judofment  for  this  usurious  interest.  Appellant 
did  not  plead,  under  the  federal  statute,  for  a  forfeiture, 
but  under  the  state  statute.  The  plea  of  usury  was 
made  a  counterclaim  by  appellant,  and  on  this  issue, 
except  as  admitted  by  the  reply,  the  burden,  was  on 
him,  and,  havinof  produced  no  proof,  he  was  entitled  to 
only  the  credit  of  admitted  usur}^  $6.45.  The  court 
did  not  err  in  refusing-  to  continue  the  case,  as  appel- 
lant had  had  full  and  ample  opportunity  to  present  his 
proof  either  before  the  commissioner  or  by  deposition. 
For  the  error  indicated,  the  judg^raent  is  reversed, 
and  cause  remanded,  with  direction  to  render  judgment 
for  appellee  for  the  amount  of  the  note  sued  on,  less 
S6.45,  the  amount  of  usury  admitted  to  be  embraced 
therein,  and  for  proceeding-s  consistent  herewith. 


National  Banks — Usury — State  Laws  Superseded. — Congress  has, 
under  the  cunatitution,  the  power  to  fix  the  rate  of  interest  which  a 
national  bank  may  take  upon  a  loan,  and  to  determine  the  penaltj' 
to  be  imposed  for  taking-  a  greater  rate.  Central  Nat.  Bank  v. 
Pratt,  115  Mass.  539,  15  Am.  Rep.  138,  1  Nat.  Bank  Cas.  595.  This 
power,  when  exercised,  is  exclusive  of  state  legislation.  Central 
Nat.  Bank  v.  Pratt,  supra  ;  Wilej'  v.  Starbuck,  44  Ind.  298.  1  Nat. 
Bank  Cas.  436  ;  Higley  v.  First  Nat.  Bank,  26  Ohio  St.  75,  1  Nat. 
Bank  Cas.  833.  So  the  provisions  of  the  national  bank  act 
imposing  penalties  upon  national  banks  for  taking  usur^', 
supersede  the  State  laws  upon  that  subject.  Davis  v.  Ran- 
dall, 115  Mass.  547,  15  Am.  Rep.  146,  Nat.  Bank  Cas.  600 ;  First 
Nat.  Bank  v.  Childs,  133  Mass.  348,  43  "Am.  Rep.  509,  3  Nat. 
Bank  Cas.  469;  Farmers,  etc.,  Nat.  Bank  v.  Bearing,  91  U.  S. 
29,  1  Nat.  Bank  Cas.  117  ;  First  Nat.  Bank  V.  Childs,  130  Mass.  519, 
39  Am.  Rep.  474  ;  Hambright  v.  Cleveland  Nat.  Bank,  3  Lea  (U.  S.) 
40,  31  Am.  Rep.  629,  2  Nat.  Bank  Cas.  419.  Overruling  Steadman  v. 
Redfield,  8  Baxt.  (Tenn.)  337.  See  also  First  Nat.  Bank  v.  Garling- 
house,  22  Ohio  St.  492,  10  Am.  Rep.  751  ;  Merchants,  etc.,  Nat.  Bank 
V.  Myers,  74  N.  Car.  514.  Contra,  see  First  Nat.  Bank  v.  Lamb,  50 
N.  Y.  95,  10  Am.  Rep.  438,  overruled  with  Farmer's  Bank  v.  Hale, 
59  N.  Y.  53,  in  Hintermister  v.  First  Nat.  Bank,  64  N.  Y.  212,  1  Nat. 
Bank  Cas.  741.  Compare  also  In  re  Wild,  11  Blatchf.  (U.  S.)  243,  1 
Nat.  Bank  Cas.  246. 


B  CAS]  NOTICE  TO  OFFICERS  19 

First  Nat.  Bank  of  Brandon  i\  Briggs'  Assignee 


First  Nat.  Bank  of  Brandon 


Briggs'  Assignees. 

(Supreme  Court  of  I'ermoni,  July  21,  iSgS.) 

Knowledge  of  Officers — When  not  Notice  to  Bank.*— Knowledge 
acquired  b}'  the  officers  of  a  bank  while  not  acting  for  it,  but  while 
acting  for  themselves,  is  not   imputable  to  the  bank. 

Promissory  Note — Insolvency  of  Maker — Fraudulent  Conveyance. — 
It  appeared  that  an  accommodation  note  was  executed  hy  B.  to  his 
brother,  plaintiff's  cashier,  for  use  at  the  plaintiff  bank  ;  that  it 
was  appropriated  to  the  use  and  benefit  of  plaintiff  by  such  cashier, 
with  the  knowledge  and  consent  of  the  maker,  after  the  latter  had 
become  insolvent ;  but  that  plaintiff,  at  such  time,  was  not  charge- 
able with  notice  of  such  insolvency.  Held,  that  the  assignees  of 
the  maker  could  not  take  advantage  of  such  insolvency  to  defeat 
such  appropriation. 

Exceptions  by  defendants  from  Rutland  county 
court,     Afjfjrmcd. 

Joel  C.  Baker  and  E.  S.  Marsh,  for  plaintiff. 
Ste~.:art  &  Wilds  and  Ormsbee  &  Brig-<rs,  for  defend- 
ants. 

Ross,    C.   J.      1.   The   first  contention  made  on   the 
referee's  report  relates  to  the  liability  of  the  insolvent's 
estate   on   claims   1  and  2.     1   is  a  note   for 
S7,000,  and  2  a  note  for  S2.200,  both  payable  ''''*'' 

to  the  plaintiff,  and  sigfned  jointly  by  the  insolvent  and 
his  brother,  Frank  F.  Brig-g-s.  The  plaintiff  dis- 
counted both  notes,  and  neither  has  ever  been  paid.  At 
the  time  these  notes  were  discounted,  Frank  F.  Brig-gs 
was  the  cashier,  and  Georgfe.  a  director,  of  the  plaintiff 
bank.  There  is  nothing*  on  the  face  of  the  notes  to 
indicate  the  relation  of  the  sig"ners  to  eacji  other.  Both 
sig-ners  upon  the  notes  appear  to  be  joint  makers  or 
principals.  In  fact,  the  insolvent  was  surety  for  the 
■other  sigfuer.     This  relation  was  not,  in  fact,    kno%vn 

*See  notes  at  end  of  case. 


20  NOTICE  TO  OFFICERS  [vOL  I 

First  Nat.  Rank  of  Brandon  v.  Brig-gs'  Assignee 

to  any  of  the  other  officers  of  the  plaintiff.  The  knowl- 
edgfe  of  the  makers  of  these  notes,  although  one  was^ 
the  cashier  and  the  other  a  director  of  the  plaintiff  bank, 
in  law,  was  not  the  knowledg-e  of  the  plain- 
Know  Ldire  of  din-  tiff.     Knowledgfe  acquired  bv  the  officers  or 

cers  whin  not  X'o-  .  r  ,.  i    •1''  ,  i-  r 

ticetoBsiik.  ag'ents  or  a  corporation  while  not  acting-  tor 
the  corporation,  but  while  acting-  for  them- 
selves, is  not  imputable  to  the  corporation.  The  g'en- 
eral  rule  which  imputes  the  knowledge  of  the  ag-ent  to 
his  principal,  and  charg-es  the  latter  with  it,  is  based 
upon  the  principle  that  it  is  the  duty  of  the  agent  to  act 
for  his  principal  upon  such  notice,  or  to  communicate 
the  information  obtained  by  him  to  his  principal,  so  as 
to  enable  the  latter  to  act  upon  it.  It  does  not  appl}'- 
when  the  ag-ent  acts  for  himself  in  his  own  interest, 
and  adversely  to  that  of  the  principal,  because  in  such 
case  he  will,  very  likely,  act  for  himself,  rather  than 
for  his  principal,  and  because  he  will  not  be  likely  to 
communicate  to  the  principal  a  fact  which  he  is  inter- 
ested to  conceal,  or  under  no  duty  to  communicate. 
This  applies  to  all  cases  where  he  is  acting-  for  himself 
with  the  corporation.  Hence,  if  a  corporation  officer  or 
ag-ent  acts  avowedly  for  himself  in  a  transaction  with 
the  corporation,  he  is  regarded  as  a  strang-er  to  the 
corporation,  dealing-  as  if  he  had  no  official  relations 
w'ith  it.  This  rule  applies  to  controversies  g-rowing- 
out  of  discount  of  bills  and  notes  by  banks  for  their 
own  officers.  In  such  cases  the  bank  will  not  be  af- 
fected by  notice  of  any  conditions  upon  which  the  note 
in  question  was  given.  4  Thomp.  Corp.  |§  5204-5208; 
Bank  v.  Gifford,  47  Iowa,  575  ;  Bank  v.  Christopher, 
40  N.  J.  Law,  435  ;  Lvndon  Mill  Co.  v.  Lyndon  L.  & 
B.  Inst.,  63  Vt.  581,  22  Atl.  575.  On  these  well-estab- 
lished principles,  the  plaintiff  is  not  affected  with 
imputable  knowledge  of  the  relation  of  the  insolvent  to 
the  other  sig-ner  of  these  notes.  Unless  knowledg-e  of 
his  relation  to  the  other  sig-ner,  on  the  facts  found,  is 
imputable  to  the  plaintiff,  it  is  not  contended  that  the 
facts  found  by  the  referee  in  regard  to  the  extension  of 
the   time  of  the  payment  of  these  notes,  if  found  from 


B  CAS]  NOTICE  TO  OFFICERS  21 

First  Nat.  Bank  of  Brandon  v.  Brig-g^s'  Assignee 

competent  testimony, — in  reofard  to  which  no  decision 
is  made, — discharg-e  the  insolvent  or  his  estate  from 
liability  to  pay  them.  These  notes,  therefore,  are 
proper  charg-es  upon  the  estate  of  the  insolvent.  Claims 
3,  4,  and  5  are  not  contested  here. 

2.  Claim  6  is  a  note  for  $5,000  executed  by  the  in- 
solvent January  17,  1891,  payable  to  the  order  of  P.  K. 
Brig-g-s,  at  the  bank  of  the  plaintiif ,  one  month  after 
date.  It  is  found  that  this  was  an  accommo- 
dation note,  executed  by  the  insolvent  to  his  [„™XiiT)' oY**" 
brother,  the  cashier  of  the  plaintiff,  for  use  f',*t''o«T^f''a"na'' 
at  the  plaintiff  bank.  It  was  made  without 
consideration  of  security.  The  referee  reports  that  it 
bears  certain  indorsments  and  memoranda  upon  its  back, 
in  the  handwriting-  of  Frank  E^.  Brig^g-s.  It  bears  the 
number  of  another  note  executed  before  that  time  by 
P.  E).  Brio-o;s  to  the  plaintiff,  for  S2,000.  There  was 
no  evidence  before  the  referee  that  this  note  was  ever 
discounted  by  the  plaintiff,  nor  that  the  bank  ever  paid 
any  money  or  other  consideration  for  it.  It  was  not 
entered  upon  the  records  or  books  of  the  bank  until 
December  30,  1892,  when  an  inventory  was  made  of  the 
notes  belongfing-  to  the  bank.  It  was  entered  upon  this 
inventory,  February  1st,  following-,  Frank  E).  Brig-g-s 
ceased  to  be  cashier,  and  Georg^e  Brig-g-s  became  cash- 
ier for  three  months.  At  the  time  of  making-  this 
inventory,  Frank  E^.  Brig-g-s  was  short  in  his  various 
accounts  with  the  plaintiff  to  the  amouut  of  $20,000. 
A  portion  of  the  shortag-e  was  in  his  loan  account.  If 
this  note  is  a  part  of  his  loan  account,  there  is  still  a 
shortag-e  of  nearly  $1,000.  When  the  inventory  was 
made,  both  Frank  E^,  and  Georg^e  were  in  fact  insolvent, 
and  filed  petitions  to  be  adjudg-ed  insolvents  in  the 
January  following-.  They  were  both  present  at  the 
making-  of  the  inventory.  It  was  found  that  Frank  E., 
on  that  day,  before  the  inventory  was  made,  indorsed 
the  note,  and  placed  it  among-  the  notes  belong-ing-  to  the 
plaintiff,  to  make  up,  in  part,  the  shortag-e  in  his  loan 
account.  When  the  note  was  found  among-  the  notes 
of  the  plaintiff  in  making-  this  inventory,    the  insolvent 


22  NOTICE  TO  OFFICERS  [vOL  I 

First  Nat.  Bank  of  Brandon  v.  Brig-g-s'  Assignee 

expressed  surprised  at  finding'  this  note  amono-  the 
notes  of  the  bank,  and  asked  what  it  meant.  Prank 
thereupon  said  that  it  belong-ed  to  him  to  pay.  There- 
upon the  insolvent  wrote  across  the  back  of  the  note 
the  words,  "This  belong-s  to  me  to  pay,"  and  Frank 
E.  Brig-jo's  sig^ned  it  by  placing  his  initials,  "F.  K.  B.," 
thereunder.  Thereafter  this  note  remained  among-  the 
notes  of  the  bank,  and  was  passed  over  by  Frank  F.  as 
such,  to  the  insolvent,  when  he  became  cashier,  Febru- 
ary 1,  1893,  and  by  the  insolvent  passed  over  to  hi& 
successor  when  he  ceased  to  be  cashier,  May  1,  1893. 
The  referee  finds  that  this  note,  with  others,  was 
signed  by  the  insolvent  with  the  understanding-  on  his 
part  than  it  was  to  be  used  by  Frank  F.  at  the  plain- 
tiff bank,  and  to  represent  money  to  be  there  borrowed 
by  him.  There  is  no  finding-  b}'  the  referee  that  either 
the  insolvent  or  his  brother,  Frank  F.,  was  insolvent 
when  the  latter  executed  and  delivered  to  the  former 
this  note,  January  17,  1891.  From  that  time  until 
December  30,  1892,  Frank  F.  held  it  in  his  hands,  with 
the  right  to  use  it  in  his  dealingfs  with  the  plaintiff; 
and  on  the  latter  date  he  did  use  it  as  an  asset 
which  he  held,  to  reduce  the  shortag-e  in  his  loan  ac- 
count with  the  plaintiff.  This  was  done  with  the 
knowledge  of  the  insolvent,  and  without  objection 
from  him.  It  then  became  an  asset  of  the  plaintiff, 
with  the  knowledge  of  the  insolvent.  It  is  not  found 
that  the  plaintiff  then  believed  or  had  reason  to  believe 
that  either  the  maker  or  indorser  of  this  note  was  insol- 
vent. The  note  was  not  a  conveyance  of  property  by 
either.  Hence  the  assig-nees  of  GeOrge  Briggs  cannot 
take  advantag-e  of  the  fact  of  insolvency  to  defeat  the 
appropriation  of  the  note  then  made  by  Frank  F.  with 
the  acquiescence  of  the  insolvent,  to  the  use  and  benefit 
of  the  plaintiff.  On  these  views,  this  note  is  a  proper 
charge  against  the  estate  of  the  insolvent. 

The  referee  has  submitted  a  question  as  to  the  time 
to  which  interest  should  be  computed  on  some  of  these 
claims.  We  have  not  considered  that  question,  inas- 
much as  we  understand    that    the    court   of  insolvency 


B  CAS]  NOTICE  TO  OFFICERS  23 

Notes 

will  adjust  the  computation  of  interest  on  all  claims 
provided  ag-ainst  the  estate  so  that  all  may  share  rata- 
bly in  the  estate.  Judo-ment  affirmed  and  ordered  to 
be  certified  to  the  court  of  insolvency. 


NOTES. 

Knowledge  of  Officers  —  When  Not  Notice  to  Corporation. —  See 

Seaverns  et  al.  v.  Presbyterian  Hospital  (111.),  8  Am.  &  Eng".  Corp. 
Cas.,  N.  S.,  468,  aud  note,  p.  478. 

An  exception  to  the  application  of  the  general  rule  that  notice  to  an 
ag-ent  is  notice  to  the  principal  arises  in  case  of  such  conduct  bj'  the 
ag'ent  as  raises  a  clear  presumption  that  he  would  not  communicate 
the  fact  in  controversy,  as  where  the  ag-ent  acts  for  himself  in  his 
own  interest  and  adversely  to  that  of  the  principal. 

England.- — Kennedj-  v.  Green,  3  Myl.  &  K.  699;  In  re  European 
Bank,  E.  R.  5  Ch.  358;  In  re  Marseilles  Extension  R.  Co.,  E.  R.  7 
Ch.  161;  Cave  v.  Cave,  15  Ch.  Div.  639. 

United  States.— "^Ww A  Nat.  Bank  v.  Harrison,  10  Fed.  Rep.  243; 
Thomson-Houston  Electric  Co.  v.  Capitol  Electric  Co.,  65  Fed.  Rep. 
341. 

^/a(6a?;/a.  — Frenkel  v.  Hudson,  82  Ala.  158,  60  Am.  Rep.  736. 

Iowa. — Davenport  First  National  Bank  z'.  Gifford,  47  Iowa  575. 

Kansas. — Wickersham  v.  Chicago  Zinc  Co.,  18  Kan.  481,  26  Am. 
Rep.  784. 

Kentucky. — Eyne  v.  Kentucky  Bank,  5  J.  J.  Marsh.  (Kj^.)  545. 

Massachusetts. — Frost  v.  Belmont,  6  Allen  (Mass.)  163;  Washing-- 
ton  Bank  v.  Eewis,  22  Pick.  (Mass.)  24;  Commercial  Bank  v.  Cun- 
ningham, 24  Pick.  (Mass.)  270,  35  Am.  Dec.  322;  Atlantic  Nat.  Bank 
V.  Harris,  118  Mass.  147;  National  Security  Bank  v.  Cushman,  121 
Mass.  490;  Eoring  v.  Brodie,  134  Mass.  453;  Dillaway  v.  Butler.  135 
Mass.  479;  Innerarity  v.  Merchants'  Nat.  Bank,  139  Mass.  332,  52 
Am.  Rep.  710;  Allen  v.  South  Boston  R.  Co.,  150  Mass.  206,  15  Am. 
St.  Rep.  185. 

Michigan. — Stevenson  v.  Bay  City,  26  Mich.  44;  Gallery  v.  Nat- 
ional Exch.  Bank,  41  Mich.  169,  32  Am.  Rep.  149. 

Missouri. — Hickman  v.  Green,  123  Mo.  165;  Merchants'  Nat.  Bank 
V.  Lovitt,  114  Mo.  525. 

New  Jersey.— ^tx?L\.\.on  v.  Allen,  16  N.  J.  Eq.  229;  Barnes  v.  Tren- 
ton Gas  Eight  Co.,  27  N.  J.  Eq.  33;  De  Kav  v.  Hackensack  Water 
Co.,  38  N.  J.  Eq.  158;  Hightstown  First  Nat!^  Bank  v.  Christopher,  40 
N.  J.  L.  435. 

Texas. — Harrington  v.  McFarland,  1  Tex.  Civ.  App.  289. 

Wisconsin. — In  re  Planking-ton  Bank,  87  Wis.  378. 

See  also  Custer  ?'.  Tompkins  County  Bank,  9  Pa.  St.  27;  Terrell 
V.  Mobile  Branch  Bank,  12  Ala.  502. 

Illustrations. — One  of  the  recent  cases  on  this  point  is  Dillawaj^  v. 
Butler,  135  Mass.  479.  A,  to  whom  B  was  indebted,  advised  C  to 
lend  money  to  B  on  thesecurity  of  a  mortgage  of  personal  property, 
and  acted  as  C's  agent  in  the  transaction.  With  the  money  thus  ob- 
tained B  paid  A  the  debt  he  owed  him.   Both  A  and  B  acted  in  fraud 


24  NOTICK  TO  OFFICERS  [VOL  I 

Notes 

of  the  Gen.  Stat.  c.  118,  ij;^  89,  91;  but  C  had  no  knowledge  of  the 
fraud.  It  was  held  that  the  kuowledg-e  of  A  was  not  in  law  imput- 
able to  C,  although  A  had  acted  for  C  in  the  negotiation.  See  also 
InneraritY  :'.  Merchants'  Nat  Bank,  139  Mass.  332,  52  Am.  Rep.  710. 

Where  an  officer  of  a  corporation  in  his  private  capacity  sells  land 
to  the  corporation,  he  must  be  held  not  to  represent  them  in  the 
transaction  so  as  to  charge  the  corporation  with  the  knowledge  he 
may  possess  of  facts  derogatory  to  the  title  of  the  land  and  which 
he  has  not  communicated  to  them.  As  such  he  is  a  stranger  to  the 
corporation.     Barnes  v.  Trenton  Gas  Lig-ht  Co.,  27  N.  J.  Eq.  33. 

Reason  of  the  Rule  as  to  Agents  Acting  in  Their  Own  Interest.— 
In  Frenkel  f.  Hudson,  82  Ala.  162,  60  Am.  Rep.  736,  Somekvili<E,  J., 
in  commenting  upon  the  above  doctrine,  says  :  "It  is  based 
upon  the  principle  that  it  is  the  duty  of  the  agent  to  act  for  his 
principal  upon  such  notice,  or  to  communicate  the  information  ob- 
tained by  him  to  his  principal,  so  as  to  enable  the  latter  to  act  on  it. 
It  has  no  application,  however,  to  a  case  where  the  ag-ent  acts  for 
himself,  in  his  own  interest,  and  adversely  to  that  of  the  principal. 
His  adversary  character  and  antagonistic  interests  take  him  out  of 
the  operation  of  the  general  rule,  for  two  reasons:  first,  that  he 
will  very  likeU',  in  such  case,  act  for  himself  rather  than  for  his 
principal;  and  secondly,  he  will  not  be  likely  to  communicate  to  the 
principal  a  fact  which  he  is  interested  in  concealing.  It  would  be 
both  unjust  and  unreasonable  to  impute  notice  by  mere  construction 
under  such  circumstances,  and  such  is  the  established  rule  of  law 
■on  this  subject." 

In  Allen  v.  South  Boston  R.  Co.,  150  Mass.  206,  15  Am.  St.  Rep. 
185,  the  rule  of  the  law  as  stated  above  was  held  to  be  the  correct 
one,  but  the  reason  of  the  rule  was  doubted.  In  that  case  the 
court  said  :  "It  is  sometimes  said  that  it  cannot  be  presumed  that 
an  agent  will  communicate  to  his  principal  acts  of  fraud  which  he 
has  committed  on  his  own  account  in  transacting  the  business  of 
his  principal,  and  that  the  doctrine  of  imputed  knowledge  rests  upon 
a  presumption  that  an  agent  will  communicate  to  his  principal 
whatever  he  knows  concerning  the  business  he  is  engaged  in  trans- 
acting as  agent.  It  may  be  doubted  whether  the  rule  and  the  ex- 
ception rest  on  any  such  reasons.  It  has  been  suggested  that  the 
true  reason  for  the  exception  is  that  an  independent  fraud  com- 
mitted 1)3'  an  agent  on  his  own  account  is  bej'ond  the  scope  of  his 
emploj-ment,  and  therefore  knowledge  of  it,  as  matter  of  lav^',  can- 
not be  imputed  to  the  principal,  and  the  principal  cannot  be  held 
responsible  for  it.  On  this  view,  such  a  fraud  bears  some  analogy 
to  a  tort  wilfully  committed  by  a  servant  for  his  own  purposes,  and 
not  as  a  means  of  performing  the  business  intrusted  to  him  by  his 
master.  Whatever  the  reason  may  be,  the  exception  is  well  estab- 
ished." 


B  CAS]  NOTICE  TO  OFFICERS  25 

Merchants'  and  Planters'  Bank  v.  Penland 


Merchants'  and  Planters'  Bank 

V. 

Penland. 

{Siiprc)}ie  Court  of  Tennessee,  Nov.  3,  i8gS.) 

Notice  to  Cashier — When  Notice  to  Bank.* — Where  the  cashier  of  a 
bank  has  been  given  full  authority  to  make  discounts,  it  cannot  be 
contended  in  behalf  of  the  bank  that  notice  to  the  cashier  is  not 
notice  to  the  bank  in  the  discounting-  of  notes. 

Promissory  Notes — Bona  Fide  Purchasers. — The  mere  fact  that 
the  holder  of  a  promissory  note  knew  that  it  was  given  for  land, 
and  that  there  was  a  lien  on  the  land  for  unpaid  purchase  money, 
and  that  there  might  thereafter  occur  a  partial  failure  of  considera- 
tion for  the  note  by  an  enforcement  of  the  lien,  will  not  render 
such  holder  subject  to  all  the  equities  that  maj'  thereafter  arise 
between  the  original  parties  to  the  note  ;  nor  prevent  him  from 
being  a  bona  fide  purchaser. 

Appeal  by  both  parties  from  Cocke  county  chan- 
cery court.  Reversed,  and  decree  directed  for  com- 
plaincuit. 

H.  N.  Cate,  for  complainant. 
W.  J.  McSween,  for  defendant. 

Wilkes,  J.  This  is  an  action  to  recover  ag-ainst 
defendant,  Penland,  two  notes,  for  $66.66  each.  The 
notes  were  g-iven  by  Penland  to  the  Newport  Develop- 
ment Company,  and  by  it  indorsed,  and  complainant 
claims  to  be  an  innocent  holder  for  value  of  the  same. 
Penland  answered  the  bill,  and  filed  a  cross  bill,  in 
which  he  seeks  to  avoid  the  notes,  and  rescind  the  con- 
tract out  of  which  they  arose,  upon  the  g-round  that 
they  were  obtained  by  the  fraudulent  representations 
of  the  bank  and  development  company;  that  the  lot  for 
which  they  were  o-iven  w^as  free  of  all  incumbrance 
and  liens;  that  the  bank  had  notice  of  the  liens  held 
by   the    parties    who    sold    to    the    development    com- 

*See  note  at  end  of  case. 


26  NOTICE  TO  OFFICERS  [vOL  I 

Merchants'  aud  Planters'  Bank  v.  Penland 

pauy,  and  took  the  notes  subject  to  the  equities  of  Pen- 
land  ao-ainst  the  development  company.  The  court  of 
chancer}'  appeals  find  that  the  bank  had  notice  of  the 
lien  of  the  Newport  Real-Estate  Company  upon  this  lot, 
and  was  affected,  in  consequence,  with  all  Penland 's 
equities  ag-ainst  that  part  of  the  lot  purchased  from  that 
compan}',  but  that  a  portion  of  the  lot  was  purchased 
from  one  Denton,  and  the  bank  did  not  have  such  notice 
of  a  lien  in  favor  of  Denton  as  would  affect  it.  Hence 
that  court  canceled  one  note,  and  entered  a  credit  on 
the  other,  and  gave  judgment  against  Penland  for  the 
balance,  the  idea  being  to  release  Penland  from  liability 
for  so  much  of  the  lot  as  was  bought  from  the  New- 
port Company,  but  hold  him  for  so  much  as  was 
bought  from  Denton  by  the  development  company. 
Both  parties  have  appealed,  and  in  this  court  it  is 
insisted  for  complainant  that  Penland  should  be  held 
for  the  whole  of  both  notes,  and  for  defendant  that  he 
should  be  released  from  both. 

Disposing  of  complainant's  assignments  first,   it  is 

insisted  that  the  court  of  chancery    appeals    erred  in 

holding  that  notice  to  the  cashier  of  complainant   bank 

was  notice  to  the   bank,  and   the  contention 

\ntice  to  Cashier-  is  that  the  bank  would  only  be  affected  by 

When  notice  to  .  c     •,  -i-  ,  •, 

Bank.  notice  to  one  oi  its  discount  committee  or 

directors.  The  court  of  chancery  appeals 
finds  as  a  fact  that  the  cashier  of  this  bank  was  allowed 
full  liberty,  and  the  widest  authorit}-,  to  make  loans 
and  discount  paper,  and  that  the  discount  committee 
aud  board  of  directors  rarely  met,  and  did  not  look  af- 
ter the  discounts,  as  was  their  dut\'.  Having  given 
full  authority  to  the  cashier  to  make  discounts,  the  bank 
cannot  be  heard  to  say  that  notice  to  him  w^as  not  not- 
ice to  the  bank  in  the  discounting  of  notes. 

The  next  assignment  is  that  Penland  knew  of  the  de- 
fects in  his  title,  and  took  warranty  deed  to  protect 
himself  therefrom,  and  hence  it  is  no  defense  to  him 
that  the  bank  had  notice  of  these  defects  and  liens. 
Nor  can  it  avail  him  anything  that  the  development  com- 
pany afterwards  became  insolvent.     In  the  same    con- 


B  CAS]  NOTICE  TO  OFFICERS  27 

Merchants'  and  Planters'  Bank  v.  Penland 

nection,  it  is  said  that  Penland,  having-  taken  a  deed 
with  covenants  of  warranty,  has  no  equitable  defense 
against  the  note,  unless  he  show  frand,  but  his  only 
protection  is  the  covenants  in  his  deed.  The  court  of 
chancery  appeals  find  that,  while  fraud  is  charg-ed  in 
the  cross  bill,  it  is  not  shown  in  the  proof.  That  court 
reports  also,  that  the  fact  of  the  insolvency  of  the  de- 
velopment company  is  set  up  in  the  answer,  and  that  the 
cross  bill,  in  effect,  charges  that  Penland  has  been 
evicted,  and  these  facts  are  proven  ;  but  they  are  not 
alle^red  to  have  been  in  existence  when  the  note  was  re- 
ceived  by  the  bank. 

Upon  this  statement  of  facts,  the  question  recurs,    is 
the  bank  a  Z'o;/*? /f^/6' holder  and   innocent  purchaser  of 
the  notes  or  is  it  affected  by  the   equities   between   the 
original  parties?      It  took  the   notes   before 
maturity,  as  collateral,  it  is  true,  but  as  sec-   Promissory >otPs- 

.-^  ,  '  TP    ji  Bona  Fide  Purclias- 

urity  tor  money  then  advanced.  it  there  ers. 
were  nothing  else  in  the  case,  this  would 
make  it  an  innocent  holder.  Bank  v.  Stockell,  92  Tenn. 
256,  21  S.  W.  523.  Does  the  mere  fact  that  it  knew  the 
notes  were  given  for  land,  and  that  there  was  a  lieu  on 
the  land  for  unpaid  purchase  money,  and  that  there 
might  thereafter  occur  a  partial  failure  of  consideration 
by  an  enforcement  of  the  lien,  render  the  bank  subject 
to  all  the  equities  that  might  thereafter  arise  between 
the  original  parties?  The  court  of  chancery  appeals 
was  of  opinion  it  did,  and  they  cite  Ingram  v.  Morgan, 
4  Humph.  66,  and  Ferriss  v.  Tavel,  87  Tenn.  386,  11 
S.  W.  93,  in  support  of  their  holding.  But  in  both  of 
these  cases  the  holder  of  the  notes  in  controversy  took 
them  to  secure  a  pre-existing  debt,  and  could  not  be 
called  an  innocent  holder.  And  the  cases  referred  to 
in  4  Am.  &  Eng.  Enc.  Law^  (2d.  Ed.)  p.  198,  are  based 
upon  a  similar  state  of  facts.  But  this  partial  failure 
of  consideration  cannot  be  asserted  against  a  bona  fide 
holder  for  value,  for  such  a  holder  takes  the  title  free 
from  the  equities  between  the  original  parties.  4  Am. 
&  Eng.  Enc.  Law  (2d.  Ed.)  p.  198;  Bank  r.  Stockell. 
92  Tenn.  256,  21  S.  W.  523.     In  addition,  it  does  not 


28  ULTRA  VIRES  [vOL  I 

Gill  V.  First  Nat.  Bank 

appear  that  these  equities  existed  between  the  origfinal 
parties  at  the  time  these  notes  were  indorsed  to  the  bank. 
The  purchaser,  Penland,  had  not  then  been  evicted, 
and,  so  far  as  the  record  shows,  the  insolvency  of  the 
company  had  not  then  been  made  manifest.  The  de- 
fense, in  order  to  be  set  up  ag-ainst  the  indorsee,  must 
be  an  equity  that  existed  v^'hen  the  indorsement  was 
made.  Bearden  v.  Moses,  7  Lea,  459  ;  Alderson  v. 
Cheatham,  10  Yerg-.  304.  We  are  of  opinion  that,  upon 
the  facts  as  found  by  the  court  of  chancer}^  appeals,  the 
bank  was  the  bona  fide  innocent  holder  of  these  notes, 
and  entitled  to  enforce  their  collection  free  of  any  equi- 
ties arisinof  between  the  orig-inal  parties  after  it  re- 
ceived them,  and  the  court  should  have  so  decreed. 
The  decree  of  the  court  of  chancery  appeals  is  reversed, 
and  judorment  will  be  entered  in  favor  of  complainant 
affainst  defendant  for  both  notes  and  interest,  and  10 
per  cent,  attorney's  fees,  as  provided  in  the  notes,  and 
all  costs. 

NOTE. 

Notice  to  Cashier  as  Notice  to  Bank. — Notice  to  a  cashier  as  to  all 
matters  within  the  sphere  of  his  business  is  notice  to  the  bank. 
Duncan  v.  Jaudon,  15  Wall.  (U.  S.)  165;  Huntsville  Branch  Bank  z'. 
Steele,  10  Ala.  915;  St.  Mary's  Bank  v.  Mumford,  6Ga.  49;  America 
Bank  v.  McNeil,  10  Bush  (Ky.)  54;  Fall  River  Union  Bank  v. 
Sturtevant,  12  Cush.  (Mass.)  375;  Trenton  Banking  Co.  v.  Wood- 
ruff, 2  N.  J.  Eq.  118;  New  Hooe,  etc.,  Bridge  Co.  v.  Phenix  Bank, 
3  N.  Y.  156;  Harrisburg  Bank  v.  Tyler,  3  W.  &  S.  (Pa.)  373;  Bir- 
mingham Trust,  etc.,  Co.  i'.  Louisiana  Nat.  Bank,  99  Ala.  379. 

Notice  to  the  cashier  who  lends  the  bank's  money  upon  the  secu- 
rity of  stocks,  that  the  stock  pledged  is  held  in  trust,  will  bind  the 
baiik.     Gaston  v.  American  Lxch.  Nat.  Bank,  29  N.  J.  Eq.  98. 


Gill 

X'. 

First  Nat.  Bank. 

(Court  of  Civil  Appeals  of  Texas,  iVov.  n,  i8g8.) 

Existence  of  Partnership. — Where  the  partnership  of  plaintiff  and 
a  third  partj-  is  set  up  as  a  defense  to  an  action,  and  is  not  denied 
under  oath,  its  existence  must  be  held  established. 


B  CAS]  ULTRA  VIRES  29 

Gill  V.  First  Nat.  Bank 

Knowledge  of  One  Partner  Notice  to  All. — In  reg-ard  to  partnei'ship 
business,  the  knowledge  of  one  partner  is  imputable  to  the  other. 

Banks — Ultra  Vires — Estoppel.* — Where  a  national  bank  has. 
acted  as  a  partner  in  the  sale  of  horses,  and  has  shared  in  the  profits 
of  such  sale,  it  is  estopped  from  denying-  its  power  to  enter  into  such 
partnership,  when  attempting-  to  enforce  the  collection  of  the  notes 
given  by  the  purchaser  for  the  property. 

Negotiability  of  Notes. — The  fact  that  a  promissory  note  is  pay- 
able "on  or  before"  a  certain  date  does  not  aifect  its   negotiabilitj'. 

Pleading  Corporate  Existence.* — The  alleg-atiou  that  plaintiff  is  a 
national  banking  corporation,  incorporated  under  and  b^'  virtue  of 
the  national  banking-  laws,  is  a  substantial  compliance  with  the 
article  of  the  statute  requiring  an  allegation  that  it  is  "duly  incor- 
porated." 

Appeal,  by  defendant  from  Dallas  county  court. 
Revei'sed. 

Henry  &  Crazc/onf,  for  appellant. 
T.  L.  Camp,  for  appellee. 

Rainey,  J.  The  appellee  bank  broug-ht  this  suit 
ag-ainst  appellant,  Gill,  to  recover  upon  several  notes 
executed  by  said  Gill,  payable  to  the  order  case  stated 

of  Jesse  Harris,  who  indorsed  and  trans- 
ferred same  to  said  bank.  The  appellant  admitted  the 
execution  of  the  notes,  but  alleged  that  the  execution 
of  same  was  procured  by  fraud,  of  which  the  bank  had 
notice  when  same  were  transferred  to  it.  The  case 
was  submitted  to  the  court  without  a  jury,  and  judg-- 
ment  rendered  for  appellee,  from  which  this  appeal  is 
taken. 

We  think  the  court  erred  in  rendering-  judg-ment  for 
the  appellee,  as  the  same  was  not  warranted,  under  the 
state  of  the  pleading's  and  evidence.  The 
defendant  in  his  answer  alleg-ed,  in  substance,  PiiJtlimiiii'k 
that  said  notes  were  executed,  for  the  pur- 
chase price  of  certain  horses  sold  by  Harris  to  the 
appellant  ;  that,  at  the  time  of  the  sale  of  said  horses 
and  the  execution  of  said  notes,  said  Harris  fraudulently 
represented  that  said  horses  were  of  the  purest  strain 
of  Clydesdale,  that  they  had  the  best  known  pedig-ree, 
and  that  all  of  them  were  elig-ible  to  regfistration  in  the 

*See  note  at  end  of  cases. 


30  ULTRA  VIRES  [vOL  I 

Gill  v.  First  Nat.  Bank 

Clydesdale  Association  of  America  ;  and  that  he  relied 
upon  said  representations,  but  that  said  representations 
were  false  ;  and  that  said  horses  were  worthless  stock. 
It  was  further  allegfed  that,  at  the  time  of  the  sale  of 
said  horses,  said  Harris  and  the  said  plaintiff  were 
partners,  and  were  acting  too^ether  in  the  sale  of  same, 
and  shared  in  the  profits  arising"  from  the  said  transac- 
tion. The  defendant  having  alleged  the  partnership 
of  Harris  and  the  plaintiff,  and  same  not  having  been 
denied  under  oath,  under  our  statute  the  court  should 
have  considered  the  partnership  as  estab- 
Knowifdife  of  One    Hshcd.     The  partnership  being- established 

fartiier  Notice  to        ,  r   ,\         r    •^  i         i  i  ,. 

All.  by  reason  ot  the  tailure  to  deny  under  oath 

the  allegations  of  partnership,  it  follows  that 
if  Harris  perpetrated  a  fraud  in  procuring  said  notes 
by  false  representations  the  bank  was  chargeable  with 
the  notice  of  said  fraud,  whether  it  had  actual  knowledge 
thereof  or  not.  In  the  case  of  Reed  t'.  Brewer,  37  S. 
W.  418,  the  supreme  court  held  that  where  the  defen- 
dant alleges  that  a  partnership  existed  between  the 
plaintiff  and  a  third  party,  the  existence  of  such  a 
partnership  would  be  considered  as  established,  unless 
the  existence  of  the  same  is  denied  by  the  plaintiff  under 
oath.  In  the  case  of  Bank  v.  Oliver,  41  S.  W.  414,  this 
court  held  to  the  contrary.  This  ruling  being  in  con- 
flict with  the  ruling  of  the  supreme  court,  as  above 
shown,  the  same  is  overruled.  When  we  made  that 
ruling  the  case  of  Reed  v.  Brewer,  supra,  had  recentlv 
been  decided,  and  we  were  not  aware  of  its  existence. 
It  is  insisted,  however,  by  appellee,  that  it  could  not 
legally  enter  into  such  a  partnership,  and  that  the  alle- 
gations of  partnership  in  defendant's  answer 

-Estopped"  ^'"'^'^'^^^^  ^^^  ^^^  considered  of  any  force  or 
effect.  We  cannot  concur  in  this  proposi- 
tion. Whether  such  partnership  would  be  legal  or 
not,  it  is  unnecessary  for  us  to  decide.  If  such  should 
be  conceded,  we  are  of  the  opinion  that  if  the  bank 
was  acting  in  connection  with  Harris  in  the  sale  of  the 
horses,  and  sharing  in  the  profits  arising  therefrom, 
it  is  estopped   from  denying  its  power  to  contract  such 


B  CAS]  ULTRA  VIRES  31 

Notes 

relation,  when  attempting-  to  reap  the  benefit  arising- 
therefrom  b}'  enforcing-  the  collection  of  the  notes 
through  the  courts. 

The  terms  of  the  note,  that  it  was  payable   "on  or 
before"   a  certain  date,   did    not  affect   its 
neg-otiability.     Buchannan    r.    Wren  (Tex.      JXf'"""-  "^ 
Civ.  App.)  30  S.  W.  1077. 

The  alleg-ation  that  plaintiff  is  a  national  banking- 
corporation,  incorporated  under  and  b}^  virtue  of  the 
national  banking  laws,  is  a  substantial  com- 
pliance with  the  article  of  the  statute  requir-  K'^*'"'"''"''''' 
ing-  an  allegation  that  it  is  "duly  incorpo- 
rated." The  judgment  is  reversed,  and  the  cause 
remanded. 


Executed  Contracts — Ultra  Vires — Corporations  Estopped.— When 
a  corporation  has  entered  into  a  contract  and  actuall)'  received  the 
consideration,  it  is  held  that  it  is  estopped  to  set  up  the  defence  of 
7(//ra  vires.  Hazelhurst  v.  Savannah,  etc.,  R.  Co.,  43  Ga.  54  ;  White 
V.  Franklin  Bank,  22  Pick.  181  ;  Parrish  v.  Wheeler,  22  N.  Y.  494  ; 
Bissell  V.  Michigan,  etc.,  R.  Co.,  22  N.  Y.  258  ;  Southern  Life  Ins. 
Co-  V.  Lanier,  5'Fla.  110;  McCluer  :■.  Manchester,  etc.,  R.  Co.,  13 
Gray,  124  ;  Chapman  v.  M.  R.,  etc  ,  R.  Co.,  6  Ohio  St.  137  ;  Hale  i'. 
Mutual  Fire  Ins.  Co.,  32  N.  H.  297  ;  Railroad  Co.  v.  Howard,  7  Wall. 
413  ;  Zabriskie  :■.  C.  &  C.  etc.,  R.  Co.,  23  How.  (U.  S.)  381  ;  Racine, 
etc..  R.  R.  Co.  t'.  Farmer's  L.  &  T.  Co.,  49  111.  346  ;  Chicago  Bid. 
Ass'n  V.  Crowell,  65  111.  454  :  City  of  St.  Louis  v.  St.  Louis  Gas 
Light  Co.,  70  Mo.  69;  Newsburg  Petroleum  Co.  z'.  Weare,  27  Ohio 
St.  343;  Oil  Creek  &  Allegheny  River  R.  Co.  v.  Penna  Trans.  Co., 
73  Pa.  St.  160  ;  Peoria  &  S.  R.  Co.  v.  Thompson,  7  Am.  &  Eng.  R. 
Cas.  101  ;  Chaffee  v.  Rutland,  etc.,  R.  Co..  16  Am.  &  Eng.  R.  Cas. 
408  ;  Nashua  &  L.  R.  Co.  v.  Boston*  L.  R.  Co.,  16  Am.  &  Eng.  R. 
Cas.  448  ;  Woodruff"  v.  Erie  R.  Co.  et  aL,  16  Am.  tt  Eng.  R.  Cas.  501  ; 
Keyser  v.  Hitz,  1  Am.  &  Eng.  Corp.  Cas.  231. 

See  also,  1  Am.  &  Eng.  Corp.  Cas.,  N.  S.,  note,  406  et  seq. 

National  Banks — PleadingCorporate  Existence. — An  allegation  in 
the  complaint  in  an  action  by  a  bank  that  "the  plaintiff'  is  a  national 
bank,  doing  business  under  the  act  of  Congress"  in  effect  avers 
that  it  is  a  corporation.  Joseph  Holmes  Fuel  &  Feed  Co.  et  al.  v. 
Commercial  Nat.  Bank  of  Denver  (Col.),  6  Am.  &  Eng.  Corp.  Cas., 
N.  S.,  244. 


32  ULTRA  VIRES  [vOL  I 

Willett  V.  Farmers'  Sav.  Bank  of  Victor 


WiLLETT 

V. 

Farmers'  Sav.  Bank  of  Victor. 

[Supreme  Court  of  loiva,  Dec.  17,  iSgS.) 

Savings  Banks— Contracts— Ultra  Vires.*— It  is  an  ult}'a  vires 
transaction  on  the  part  of  a  savinj^-s  bank,  and  not  even  within  its 
apparent  powers,  to  enter  into  a  contract  to  attend  a  public  sale  for 
the  purpose  of  keeping-  an  account  of  the  sales  and  taking  promis- 
sory notes  from  purchasers,  with  approved  security  ;  and  the  prin- 
cipal under  such  contract  cannot  recover  for  negligence  on  the 
part  of  the  bank  in  carrying  it  out. 

Appeal  b}^  plaintiff  from  Iowa  county  district  court. 
A  ffirnicd. 

D.  H.  Wilson,  for  appellant. 
Hedges  &  Rumble,  for  appellee. 

Given,  J.  1.  The  petition  is  quite  leng-thy,  but  the 
following-  will  be  a  sufficient  statement  of  it  for  the 
purposes  of  the  question  presented  on  this  appeal: 
Plaintiff  alleges  that  defendant  is  a  corporation  or- 
gani/.ed  under  the  laws  of  this  state  as  a  savings  bank, 
and  is  doing-  business  as  sucli;  that  about  the  1st  day  of 
February,  1896,  plaintiff  employed  the  defendant,  for 
a  consideration,  to  attend  a  public  sale  to  be  held  by 
plaintiff,  as  his  agent,  to  keep  an  account  of  the  sales, 
to  take  promissory  notes  from  purchasers,  with  ap- 
proved security,  when  the  purchase  exceeded  five  dol- 
lars, and  to  retain  the  notes,  and  collect  the  same  when 
due;  that  defendant,  throug-h  its  duly-authorized  ag-ents 
and  servants,  attended  said  sales,  kept  the  accounts, 
and  took  the  notes,  and  that  plaintiff,  relying-  on  them, 
gave  the  matter  no  further  consideration;  that  one 
James  Doonen  was  a  purchaser  to  the  amount  of  $161.80; 
that  defendant's  agent  prepared  a  note  for  him  to  ex- 

*See  note  at  end  of  case. 


B  CAS]  ULTRA  VIRES  33 

Willett  V.  Farmers'  Sav.  Bank  of  Victor 

ecute,  and  g-ave  it  to  him  to  be  sig-ned  by  himself  and 
surety;  that  James  Doonen  returned  the  note  to  defen- 
dant's ao-ent,  sig-ned  by  himself,  and  purporting  to 
have  been  signed  by  Thomas  Doonen,  and  defendant's 
agent  accepted  and  approved  the  same;  that  the  name 
Thomas  Doonen  to  said  note  was  a  forgery;  that  no 
such  man  lived  in  the  community;  and  that,  as  defen- 
dant well  knew,  James  Doonen  was  not  financially 
responsible.  Plaintiff  alleges  that  the  defendant, 
through  its  agents  and  employees,  was  careless  and 
negligent  in  permitting  James  Doonen  to  take  said  note 
to  have  the  same  signed  by  a  surety,  and  in  receiving- 
and  approving  the  note,  with  the  knowledge  of  James 
Doonen's  financial  inability,  and  without  inquiring  as 
to  Thomas  Doonen;  that  James  Doonen  has  disposed 
of  all  his  property,  and  absconded,  wherefore  it  would 
be  useless  to  bring  suit  against  him;  and  that  because 
of  defendant's  negligence  plaintiff  is  entitled  to  recover 
the  sum  of  said  note  and  interest  from  the  defendant. 
The  ground  of  the  demurrer  is  that  the  petition  shows 
on  its  face  that  the  defendant  is  a  savings  bank  incor- 
porated under  the  laws  of  Iowa,  "and  the  defendant, 
under  the  laws  of  Iowa,  has  no  authority  to  enter  into 
any  contract  or  obligation  for  the  performance  of  any 
of  the  acts  stated  and  set  forth  in  said  pleadings." 

2.  Briefly  stated,  the  basis  of  plaintiff's  demand  is. 
that,  for  a  consideration  to  be  paid,  the  defendant  sav- 
ings bank  agreed  that  in  accepting  and  approving* 
the  sale  notes  it  would  exercise  care  to  see 
that  the  notes  were  well  secured,  and  thatinaccepting* 
the  Doonen  note  it  failed  to  exercise  care,  and  acted 
negligently.  The  petition  shows  that  defendant  was 
incorporated  as  a  savings  bank  under  the  laws  of  Iowa, 
and  under  repeated  decisions  it  could  only  exercise 
the  power  conferred  by  those  laws.  The  contention 
being  whether  the  defendant  had  power  to  make  the 
agreement  set  up  in  the  petition,  we  turn  to  the  laws 
of  Iowa  for  the  answer.  The  defendant  was  incorpo- 
rated under  the  laws  as  found  in  chapter  6a.  p.  449, 
and  following,  McClain's  Code,  under  the  head  "Sav- 

B  CAS — 3 


34  ULTRA  VIRES  [vOL  I 

Willett  V.  Farmers'  Sav.  Bank  of  Victor 

intrs  Banks."  Section  1788  authorizes  the  incorpora- 
tion of  savino-s  banks  "for  the  purpose  of  receivino-  on 
deposit  the  saving-s  and  funds  of  others,  and  preservino- 
and  safely  keepinof  the  same,  and  paying  interest  or 
dividends  thereon."  Section  1789  provides  that  the}- 
"shall  have  power  to  transact  business  of  such  insti- 
tutions." Section  1792,  under  "Enumeration  of  Pow- 
ers," provides  that  they  shall  have  power:  "First.  To 
sue  and  be  sued  in  any  court.  Second.  To  make  and 
use  a  common  seal,  and  to  alter  the  same  at  pleasure. 
Third.  To  purchase,  hold,  sell,  conve^^  and  release 
from  trust  or  mortg'aofe,  such  real  and  personal  estate 
as  hereinafter  provided  for  in  this  act.  Fourth.  To 
appoint  such  ofiBcers,  ag-ents,  and  servants  as  the  busi- 
ness of  the  corporation  shall  require;  to  define  their 
powers,  prescribe  their  duties,  and  fix  their  compen- 
sation; and  to  require  of  them  such  security  as  may  be 
thought  proper  for  the  fulfillment  of  their  duties. 
Fifth.  To  loan  and  invest  the  funds  of  the  corporation, 
to  receive  deposits  of  money,  or  to  loan  and  invest  the  same 
as  hereinafter  provided,  and  to  repay  such  deposits 
without  interest,  or  with  such  interest  as  the  by-laws 
or  the  constitution  may  provide.  Sixth.  To  make  by- 
laws, not  inconsistent  with  the  laws  of  this  state,  for 
the  organization  of  the  company,  and  the  management 
of  its  propertv,  the  regulation  of  its  affairs,  the  con- 
dition on  which  deposits  will  be  received,  the  time  and 
manner  of  dividing  the  profits  and  of  paying  interest 
on  deposits,  and  for  carrying  on  all  kinds  of  business 
within  the  objects  and  purposes  of  the  company." 
Section  1794  authorizes  such  banks  to  "receive  on 
deposit  all  such  sums  of  money  as  shall,  from  time  to 
time,  be  offered  bv  tradesmen,  merchants,  laborers, 
servants,  minors  and  others."  Section  1796  authorizes 
the  directors  or  trustees  to  invest  the  funds  belonging- 
to  the  bank,  all  moneys  .deposited  therein,  and  all  the 
gains  or  profits  thereof,  "only  as  follows,"  namely, 
bonds,  etc.,  of  the  United  States  and  of  this  state,  stock 
bonds  or  warrants  of  any  city,  town,  county,  village, 
or    school    district    of    this    state,   issued    pursuant  to 


B  CAS]  ULTRA  VIRES  35 

Willett  V.  Farmers'  Sav.  Bank  of  Victor 

an}^  law  of  the  state,  and  in  notes  secured  b}'  first 
tnortgag-e  or  deed  of  trust  upon  real  estate  in  this 
state;  also  to  discount,  purchase,  sell,  and  make  loans 
upon  commercial  paper,  notes,  bills  of  exchang-e,  drafts, 
or  any  other  personal  or  public  security.  Section  1797 
makes  it  lawful  for  such  banks  to  purchase,  hold,  and 
convey  the  real  estate  in  which  the  business  is  carried 
■on,  and  such  as  shall  have  been  purchased  at  foreclosure 
or,  execution  sales  on  mortg-ag-es  or  judg-ments  owned 
by  the  bank.  Other  powers  conferred  relate  to  the 
manner  of  orgfanizing".  As  we  view  it,  ihere  is  not  in 
all  these  sections  an  expression  that  can  be  construed 
as  authorizing-  savingfs  banks  to  make  such  an  agreement 
as  that  set  up  in  the  petition.  If  they  may  agfree  to 
furnish  clerks  for  public  sales  to  keep  the  account  of 
the  sales  and  to  take  notes  with  g-ood  security,  and  to  be 
responsible  for  the  exercise  -of  care  on  the  part  of  such 
clerks,  they  may  contract  to  furnish  like  services  to 
merchants,  manufacturers,  common  carriers,  and  others, 
and  to  assume  like  obligfations.  Such  an  oblig"ation  is 
somewhat  in  the  nature  of  a  securitv.  In  Lucas  v. 
Transfer  Co.,  70  Iowa,  542,  SON.  W.  772,  we  held 
that  the  defendant,  incorporated  for  "gfeneral  freight 
and  transfer  business,"  had  no  power  to  make  a  con- 
tract whereby  it  became  surety  for  another.  The 
alleged  agreement  is  not  within  the  powers  conferred, 
and  is  contrary  to  the  spirit  and  purpose  of  the  statute 
authorizing  saving's  banks.  This  conclusion  finds 
support  in  the  case  of  Lucas  t'.  Transfer  Co.,  supra. 

3.  In  Lucas  v.  Transfer  Co.,  supra,  it  is  said: 
"'Where  the  officers  of  a  corporation  make  a  contract 
with  third  parties  in  regfard  to  matters  apparently  with- 
in their  corporate  powers,  but  which,  upon  the  proof 
of  extrinsic  facts  (of  which  such  parties  had  no  notice), 
lies  beyond  their  powers,  the  corporation  must  be  held, 
unless  it  may  avoid  liability  by  taking-  timelv  steps  to 
prevent  loss  or  damag-e  to  such  third  parties  ;  for  in 
•such  cases  the  third  party  is  innocent,  and  the  corpo- 
ration or  stockholders  less  innocent  for  having-  selected 
officers  not  worthy  of  the  trust  reposed  in  them. "     The 


36  ULTRA  VIRES  [vOL  I 

Notes 

matter  of  this  contract  was  not,  apparently,  within  the 
corporate  powers  of  a  saving-s  bank.  Plaintiff  would 
not  have  thouo-ht  of  gfoincr  to  a  savincrs  bank  to  furnish 
him  help  on  his  farm  under  an  agreement  that  the  help 
should  exercise  care  in  the  performance  of  the  work. 
The  illustrations  g-iven  in  that  opinion  show  that  the 
rule  does  not  apply  in  this.  The  demurrer  was  prop- 
erly sustained,  and  the  judg-ment  is  therefore  affirmed. 


Ultra  Vires  Contracts — When  and  by  Whom  the  Plea  of  Ultra  Vires 
Can  and  Cannot  be  Raised. — It  is  now  well  settled  that  a  corporation 
cannot  avail  itself  of  the  defease  of  ultra  vires  when  a  contract  has 
been  in  good  faith  full3'  performed  \>y  the  other  party,  and  the  cor- 
poration has  had  the  full  benefit  of  the  performance  of  the  con- 
tract. The  same  rule  holds  e  converso.  If  the  other  partj'  has  had 
the  benefit  of  a  contract,  fully  performed  by  the  corporation,  he  will 
not  be  heard  to  object  that  the  contract  and  performance  were  not 
within  the  legitimate  powers  of  the  corporation.  Whitney  Arms 
Co.  V.  Barlow,  63  N.  Y.  62 ;  /;/  re  National  P.  B.  Building  Society, 
L.  R.,  5  Ch.  App.  309  ;  Rutland  &  B.  R.  Co.  v.  Proctor,  29  Vt.  93  ; 
Farmers'  &  Millers'  Bank  v.  D.  &  M.  R.  Co.,  17  Wis.  372. 

If  an  action  cannot  be  brought  directly  upon  an  agreement  because 
it  is  iiltra  vires,  either  equity  will  g-rant  relief  or  an  action  in  some 
other  form  will  prevail. 

Where  no  fraud  has  been  committed  or  intended,  a  corporation 
which  has  enjoyed  the  benefit  of  a  contract  cannot  plead  that  it 
was  ultra  vires.     Town  Co.  :■.  Morris,  43  Kan.  282. 

A  contract  of  a  corporation  is  presumed  to  be  infra  vires  until 
the  contrary  is  made  to  appear.  Southern  Express  Co.  v.  Western 
N.  C.  R.  Co.,  99  U.  S.  191,  199. 

The  courts  will,  as  a  general  rule,  presume  that  contracts  made 
by  a  corporation,  and  which  appear  to  be  designed  to  promote  its 
legitimate  and  profitable  operation,  are  within  the  limits  of  its  pow- 
ers, and,  if  their  validity  be  assailed,  will  require  the  assailant  to 
assume  the  burden  of  demonstrating  that  fact.  EUerman  v.  Chi- 
cag-o  Junction  Railways  &  Stock- Yards  Co.,  49  N.  J.  Eq.  217,  35  Am. 
&  Eng.  Corp.  Cas.  388. 

An  unauthorized  executory  contract  made  by  a  corporation  cannot 
be  enforced,  yet,  where  a  contract  has  been  executed  and  the  corpo- 
ration has  received  the  benefit  therefrom,  the  law  interposes  an 
estoppel,  and  will  not  permit  the  corporation  to  question  the  validity 
of  the  contract.  Rich  v.  Bank,  7  Neb.  201;  White  v.  Bank,  39  Mass. 
181;  Alleghany  City  v.  McCluran,  14  Pa.  St.  81  ;  Durham  v.  Mining 
Co.,  22  Kan.  232. 

Where  a  contract  results  to  the  benefit  of  a  corporation,  very  slight 
evidence  of  acquiescence  or  application  will  be  sufficient  to  give  it 
validity.     Getty  v.  Milling  Co.,  40  Kan.  281. 

Where  a   want  of  power  is  pleaded  in  favor  of   a  corporation,    to 


B  CAS]  ULTRA  VIRES  37 

Notes 

defeat  the  payment  of  the  consideration  for  benefits  which  the  cor- 
poration has  received  and  enjoyed,  the  courts  will  go  as  far  as  is 
consistent  with  law  to  uphold  the  contracts  for  the  purpose  of  main- 
taining justice,  equity,  and  good  conscience  ;  but  where  the  want  of 
power  is  pleaded  against  a  corporation  to  prevent  wrong-,  the  corpo- 
ration will  be  held  to  the  strictest  rules  of  law.  Tippecanoe  County 
V.  Lafayette  M.  &  B.  R.  Co.,  50  Ind.  85. 

One  who  has  received  from  a  corporation  the  full  consideration 
of  his  agreement  to  pay  money  cannot  avail  himself  of  the  objection 
that  the  contract  was  ultra  vires.  Chicago  &  Atl.  R.  Co.  v.  Derkes, 
103  Ind,  520. 

In  this  case  the  defendants  in  error,  in  consideration  of  the  con- 
struction of  a  railroad  to  a  certain  county  and  town,  obligated 
themselves  in  a  sum  sufficient  to  paj^  for  the  right  of  way  across  the 
county  ;  and  after  the  road  was  constructed  as  agreed,  claimed  a 
want  or  inadequacy  of  consideration  for  the  contract,  and  also 
sought  to  evade  the  same  on  the  ground  that  it  was  ultra  vires  the 
corporation,  but  the  court  held  them  to  the  fulfillment  of  their 
agreement. 

In  Doyle  v.  Mizner,  42  Mich.  332,  it  was  said  that  the  rule  that 
one  who  recognizes  an  association  as  a  corporation  by  dealing  with 
it  as  such  is  estopped  from  disputing  its  incorporation  originates  in 
equitable  principles  and  rests  on  the  ground  that  the  act  of  recog- 
nition creates  relations  and  encourages  conduct  which  there  may  be 
difficulty  in  undoing  ;  but  it  does  not  apply  where  no  new  rights 
have  intervened,  and  the  recognition  has  itself  been  brought  about 
by  a  fraudulent  dealing  carried  on  for  the  purpose  of  entrapping  a 
party  into  the  act  from  which  the  recognition  is  inferred. 

If  a  corporation,  in  excess  of  the  powers  conferred  hy  its  charter, 
receives  a  sum  of  money  upon  condition  that  it  will  return  it  if  an 
additional  sum  is  not  raised  within  a  given  time,  and  the  condition 
is  broken,  an  action  may  be  maintained  against  the  corporation  on 
an  implied  promise  to  return  the  money.  And  it  is  no  defense  to 
the  action  that  the  corporation  had  no  charter  power  to  enter  into 
the  contract  named.  Morville  v.  American  Tract  Society,  123  Mass. 
129. 

In  this  case  the  plaintiff  had  paid  S5000  to  the  defendant  society 
under  an  agreement  with  the  treasurer  thereof  that  it  should  be  re- 
paid to  him  in  case  the  society  should  not  be  allowed  to  retain  its 
catholic  condition,  and  unless  $50,000  were  raised  witliin  five  years 
for  evangelization  purposes.  A  receipt  for  the  money  signed  hy 
the  treasurer,  and  reciting  that  agreement,  was  given  to  the  plain- 
tiff. There  was  a  failure  of  one  of  the  conditions  named,  but  the 
society  refused  to  pay  the  monej'  back  to  the  plaintiff,  whereupon 
suit  was  broug-ht,  and  defended  on  the  ground,  principally,  that  the 
contract  was  not  within  the  chartered  powers  of  the  societ3'  and 
hence  could  not  be  enforced  against  it.  But  the  court  held,  as  stated, 
that  the  c6rporation  was  liable  for  the  money  received. 

In  Ohio  Life  Ins.  &  T.  Co.  v.  Merchants'  Ins.  &  T.  Co.,  11  Humph. 
<Tenn.)  1,  the  defendant,  the  Merchants'  Ins.  &  T.  Co.,  was  incor- 
porated with  power  to  make  insurances,  to  accept  and  execute 
trusts,  to  loan  itscapital  stock  or  invest  it  in  other  stocks,  to  hold  real 
estate  for  certain  purposes,  to  establish  agencies,  and  to  do  all  other 
acts  necessary  to  carry  out  these  objects.  Another  statute  (Laws 
1827,  ch.  85)   declared  that  no  corporation  or  individual  shall  estab- 


.TSf'-^^ 


38  ULTRA  VIRES  [vOL  I 

Notes 

lisVi  any  office  for  discount  or  deposit,  or  issue  any  bills,  promissor3- 
notes,  or  other  instrument  of  writing",  with  intent  to  put  into  opera- 
tion an^'  banking  institution.  The  company  named  dealt  exclusively 
in  exchanges,  not  in  aid  of  its  legitimate  objects,  but  as  an  independ- 
ent pursuit,  and  in  the  course  of  such  dealing  became  indebted  to  the 
Ohio  Life  Ins.  &  T.  Co.  The  Ohio  company,  however,  had  no 
knowledge  that  the  specific  acts  of  dealing  in  exchange  to  which  it 
was  a  party  were  in  the  unlawful  pursuit  of  banking  on  the  part  of 
the  defendant  company.  Held,  that  the  defendant  companj'  had 
power  to  deal  iu.exchange  so  far  as  it  was  necessary  to  carry  on  the 
business  of  insurance,  but  that  it  had  no  power  to  deal  in  exchange 
except  in  aid  of  that  business  without  an  express  grant  from  the 
legislature  to  do  so,  and  its  actual  dealings  in  exchange  were  other- 
wise unauthorized  and  void;  but  that  the  defendant,  having  the 
power  to  deal  in  exchange  for  certain  purposes,  and  the  plaintiff  not 
having  knowledge  of  the  unlawful  conduct  of  the  defendant, the  lat- 
ter should  not  be  permitted  to  derive  a  profit  from  the  violation  of 
the  statute,  and  therefore  it  should  be  decreed  to  pay  debts  con- 
tracted in  furtherance  of  its  unlawful  pursuit. 

The  fact  that  the  contracts  made  with  the  Ohio  company  were 
made  in  another  state  was  held  by  the  court  not  to  invalidate  the 
same  on  that  account,  on  the  ground  that  corporations  are  recog- 
nized in  theconiitv  of  states,  and  that  corporations  chartered  in  one 
state  may  make  in  another  all  contracts  which  are  within  the  sphere 
of  its  powers  in  the  state  where  organized,  and  which  are  not  pro- 
hibited by  the  law  of  the  state  where  the  contracts  are  actually 
entered  into. 

Where  two  corporations,  without  legal  authority,  unite  their  busi^ 
ness  for  the  purpose  of  promoting  their  interests,  enter  into  contract 
accordingU',  and  receive  the  benefit  of  those  contracts,  they  cannot, 
when  liabilities  arise  thereon,  or  accrue  to  them  in  the  operation  of 
their  consolidated  interests,  interpose  as  a  shield  from  responsibility 
the  violation  of  their  own  charters  in  entering  into  such  a  combina- 
tion. Bissell  V.  Michigan  Southern  &  N.  I.  R.  Co.,  22  N.  Y.  258, 
a  (finning  29  Barb.  602. 

The  facts  in  tuis  case  may  be  briefly  stated  thus:  Two  railroad 
companies,  one  chartered  in  Michigan  and  the  other  in  Indiana, 
were  authorized  to  construct  and  operate  a  railroad  within  their 
respective  states;  they  united  their  business  and  operated  their  own 
roads,  and  also  a  third  road  in  the  state  of  Illinois.  In  an  action  to 
recover  damages  brought  by  a  passenger  who  was  injured  in  a  col- 
lision in  Illinois  through  the  carelessness  and  neglect  of  the  defend- 
ant, the  latter  set  up  as  a  defense  that  the  contract  to  carry  was 
ultra  z'in's,  as  it  was  the  outcome  of  the  unlawful  combination  of 
the  companies;  but  the  court  determined  that  the  defendants  were 
jointly  liable.  This  case  was  distinguished  in  Lucas  i'.  White  Line 
Transfer  Co. ,70  Iowa  548.  and  in  Nassau  Bank  i'.  Jones,  95  N.  Y.  123. 

It  is  not  ullra  vires  for  a  railroad  company,  by  its  directors,  to 
contract  to  issue  to  contractors  for  the  completion  of  the  road  pre- 
ferred stock  in  the  company  in  payment  for  work  to  be  done,  and 
to  agree  that  the  majority  of  the  directors  shall  be  the  holders  of  a 
certain  number  of  shares  of  said  preferred  stock;  provided  the 
number  of  shares  agreed  to  be  issued  does  not  make  the  whole 
amount  of  shares  greater  than  the  capital  stock  authorized  by  the 
charter.  Waknek,  J.,  dissenting.  Hazlehurst  z'.  Savannah  G.  &N> 
A.  R.  Co.,  43  Ga.  13. 


B  CAS]  ULTRA  VIRES  39 

Notes 

Where  constitutional  restrictions  affect  the  manner  and  not  the 
fact  of  the  exercise  of  powers  by  a  corporation,  municipal  or  other- 
wise, acts  not  within  the  scope  of  the  express  powers  of  the  corpor- 
ation may  not  be  ultra  vires,  but  aliter,  if  the  exercise  of  the  power 
itself  is  prohibited.     McPherson  v.  Foster  Bros.,  43  Iowa  48. 

The  doctrine  of  ultra  vires  oug-ht  to  be  reasonabl)-,  and  not  un- 
reasonably, understood  and  applied  ;  and  whatever  may  be  fairly 
regarded  as  incidental  to  and  consequential  upon  those  thing^s 
which  are  authorized  by  the  charter  of  the  company  oug-ht  not, 
unless  expressly  prohibited,  to  be  held,  by  judicial  construction,  to 
be  ultra  vires.  Ellerman  v.  Chicag^o  Junction  Railways  &  Union 
Stock  Yards  Co.  et  at.,  49  N.  J.  Eq.  217,  35  Am.  &  Eng-.'  Corp.  Cas. 
388. 

The  plea  of  ultra  vires  will  be  rejected  by  the  court  when  it  in- 
jures other  parties.     Norwich  v.  Norfolk  R.  Co.,  4  El.  &  Bl.  449. 

And  where  it  would  defeat  the  ends  of  justice  or  work  a  leg^al 
wrong-.     Ohio  &  Miss.  R.  Co.  v.  McCarthy,  96  U.  S.  258.     , 

The  doctrine  of  ultra  vires  has  no  application  to  the  wrong-s  done 
by  a  corporation;  hence  corporations  are  liable  for  every  wrong-  of 
which  they  are  guilty.  Philadelphia  W.  &  B.  Co.  v.  Ouigley,  21 
How.  (U.  b.)  209;  Green  v.  London  Omnibus  Co.,  7  C.  B.  290;  Life 
&  Fire  Ins.  Co.  v.  Mechanics'  Ins.  Co.,  7  Wend.   (N.  Y.)  31. 

Same — Lending  Corporate  Credit. — It  is  well  settled  that  in  the 
absence  of  statutory  or  charter  authority  a  corporation  has  no  power 
either  direct  or  incidental,  to  bind  itself  by  making-  or  iiidorsing- 
neg-otiable  instruments  for  the  accomodation  of  the  makers,  even 
for  a  consideration  paid.  National  Park  v.  German  American  Mut. 
W.  &  S.  Co.,  116  N.  Y.  281,  citiu'r  Central  Bank  v.  Dressing-  Co.,  26 
Barb.  (N.  Y.)  23;  Bridg-eport  City  Bank  v.  Same,  30  Barb.  (N.  Y.) 
421;  Farmers'  &  Mechanics'  Bank  v.  Same,  5  Bosw.  (N.  Y.)275; 
Morford  v.  Bank,  26  Barb.  (N.  Y.)  268;  Bank  v.  Bank,  13  N.  Y.  309  ; 
Bank  v.  Insurance  Co.,  50  Conn.  167;  Bank  v.  Globe  Works,  101 
Mass.  57  ;  Davis  v.  Railroad  Co.,  131  Mass.  258  ;  Culver  v.  Real 
Estate  Co.,  91  Pa.  St.  367;  Hall  v.  Turnpike  Co.,  27  Cal.  255. 

A.  national  bank  cannot  become  an  accomodation  endorser  or 
loan  its  credit.  National  Bank  of  Commerce  v.  Atkinson,  (C.  C.)  55 
Fed.  Rep.  465. 

The  cashier  of  a  bank  is  not  presumed,  by  reason  of  his  official 
position,  to  have  power  to  bind  the  bank  as  an  accomodation  en- 
dorser on  his  individual  note;  and  if  the  payee  of  such  note  fails  to 
prove  that  the  cashier  has  such  authority  to  make  such  endorsement 
he  cannot  recover  against  the  bank.  West  St.  Louis  Saving  Bank 
V.  Shawnee  Co.  Bank,  95  U.  S.  557. 

It  seems  that  while  a  banking  association  cannot  lawfully  become 
an  accomodation  endorser  for  other  persons,  or  in  any  wa3'  law- 
fully become  a  party  to  accomodation  paper,  it  may  endorse  com- 
mercial paper  which  comes  into  its  hands  in  the  ordinary  course  of 
business,  with  a  view  to  raise  money  upon  the  same  by  way  of  dis- 
count.    Bank  of  Genessee  v.  Patchin  Bank,  13  N.  Y.  309. 

It  is  beyond  the  power  of  a  railroad  corporation  or  of  a  corpora- 
tion organized  for  the  manufacture  and  sale  of  musical  instruments, 
tog-uarantee  the  payment  of  the  expenses  of  a  musical  festival,  and 
no  action  can  be  maintained  against  either  corporation  upon  such  a 
guaranty,  althoug-h  it  was  made  with  the  reasonable  belief  that  the 
holding  of  the  proposed  festival  would  be  of  great  pecuniary  benefit 


40  ULTRA  VIRES  [vOL  I 

Notes 

to  the  corporation  bj^  increasing-  its  proper  business,  and  the  festival 
has  been  held  and  expenses  incurred  in  reliance  upon  the  g-uarantj'. 
Davis  V.  Old  Colony  R..Co.  131  Mass.  253;  disfinguis/u'd  in  Sutro 
Tunnel  Co.  v,  Seg-regated  Belcher  Min.  Co.,  19  Nev.  129. 

Illustrative  Cases. — In  Lucas,  Cashier,  etc.,  v.  White  Line  Transfer 
Co.,  70  Iowa  541,  the  defendant  was  a  corporation  org-anized  for  the 
purpose  of  engaging  in  the  "general  freight  and  transfer  business." 
By  its  secretary  it  joined  the  plaintiff,  the  Valley  National  Bank, 
in  executing  a  bond  of  suret3^ship  for  certain  parties  to  a  brewing 
compan3'.  The  parties  thus  bonded  afterwards  failed,  but  gave  to 
the  plaintiff"  and  the  defendant  their  note  for  the  amount  of  the 
bonds  in  consideration  of  the  pa3''ee  assuming  that  amount  of  their 
indebtedness  to  the  brewing  companj'.  The  defendant  then,  b3'  its 
president,  joined  the  plaintiff  in  a  letter  to  the  brewing  company  in 
which  the  indebtedness  of  the  parties  bonded  was  assumed  to  the 
amount  of  the  note.  The  defendant  also  joined  the  plaintiff  in  an 
action  on  said  note  against  the  makers  thereof.  The  defendant  re- 
fused to  pa3'  to  the  brewing  compan3'  any  portion  of  the  indebted- 
ness thus  assumed,  and  the  plaintiff'  paid  the  whole  of  it,  and  in  this 
action  sought  to  recover  contribution  from  the  defendant  as  a  co- 
surety. Held,  that  the  defendant's  orig-inal  contract  of  suret3'ship 
was  Jilfra  I'irrs,  as  was  also  its  assumption  of  indebtness  by  the 
letter  signed  by  its  president,  and  that  the  other  acts  of  its  officers 
did  not  estop  it  from  insisting  upon  the  defense  of  ultra  vires,  and, 
hence  that  no  recovery  could  be  had  upon  that  contract. 

In  Credit  Co.  v.  Howe  Machine  Co.,  54  Conn.  357,  it  was  shown 
that  the  defendant  was  a  manufacturing  corporation  organized 
under  the  laws  of  the  State  of  Connecticut  with  its  principal  office 
in  the  City  of  New  York,  and  limited  b3'  its  charter  to  such  use  of 
mercantile  paper  as  should  be  necessar3'  to  the  convenient  prosecu- 
tion of  its  business,  which  paper  its  treasurer,  b3'  vote  of  its  direct- 
ors, was  authorized  to  execute  on  behalf  of  the  company.  S.,  who 
had  been  its  president,  and  was  still  a  large  stockholder, "drew  drafts 
upon  the  defendant  company  in  London,  England,  where  he  was 
engaged  in  stock  speculation,  and  which  drafts  were  accepted  by 
the  treasurer  of  the  compan3s  but  were  subsequently  protested  for 
non-payment.  S.  had  previously  had  funds  in  the  hands  of  the 
company  against  which  he  had  previously  drawn,  and  the  drafts 
had  been  accepted  and  paid,  but  at  the  time  the  protested  drafts 
were  made  his  account  was  largely  overdrawn  and  the  acceptance 
of  them  was  for  his  accommodation.  These  drafts,  at  the  time  they 
were  drawn  and  before  acceptance,  were  discounted  by  the  plaintiff 
company  through  one  W.  who  was  a  member  and  the  managing 
director  of  the  plaintiff  company,  and  the  proceeds  were  delivered  to 
S.  and  by  him  immediately  placed  to  his  credit  with  W.  &  Co.,  a 
firm  to  which  he  was  largel3'  indebted,  and  of  which  W.  was  a  mem- 
ber. The  plaintiff"  company  had  previousU-  discounted  similar 
drafts  for  S.,  which  had  been  accepted  and  paid,  and  the  treasurer 
of  the  defendant  compan3^  had  previousU'  accepted  drafts  of  S.  for 
his  accommodation  with  the  knowledge  of  the  directors.  In  this 
suit,  which  was  brought  upon  the  protested  drafts,  it  was,  among 
other  things.  Held: 

1.  That  although  the  defendant  conipan3'  had  power  by  its  char- 
ter to  deal  onl3'  in  mercantile  paper  necessary  to  its  business.  3'et  as 
it  had  that  power  it  would  be  holden  b3'  the  acceptances  in  question 


B  CAS]  ULTRA  VIRES  41 

Notes 

except  against  a   part3'   who  took  the  paper  in  issue  knowing   that 
they  were  accomodation  acceptances. 

2.  That  it  did  not  follow  that  the  plaintiff  took  the  paper  in  ques- 
tion in  bad  faith  because  of  the  object  for  which  S.  procured  the 
money,  since  he  might  have  drawn  upon  funds  of  his  own  in  the 
defendant's  hands,  and  if  so,  the  intended  use  of  the  money  was  of 
no  consequence. 

3.  That  the  plaintiff  company  was  not  to  be  regarded  as  not  a  holder 
for  value  because  of  the  fact  that  the  money  obtained  was  placed  to 
the  credit  of  S.  with  W.  &  Co.,  to  whom  he  was  indebted  ;  since  the 
fact  that  W.  was  a  member  and  managing  director  of  the  plaintiff 
company,  and  also  a  member  of  W.  &  Co.,  did  not  create  a  commu- 
nity of  relation  to  the  transaction  on  the  part  of  the  two  companies. 

See  also  Webster  &  Co.  v.  Howe  Machine  Co.,  54  Conn.  394,  which 
action  was  heard  with  the  one  just  mentioned,  the  facts  being  com- 
mon to  both,  but  wherein,  upon  additional  facts  peculiar  to  itself, 
it  was  held  that  a  corporation  cannot  acquire  a  right  to  accept 
drafts  for  accomodation  b}'  assuming  and  repeatedh'  exercising  the 
right,  and  that  neither  the  directors  or  stockholders,  by  permission 
or  ratification,  can  confer  the  power  on  any  of  the  officers. 

Held,  also,  that  where  a  party  takes  such  an  acceptance  without 
notice  that  it  is  for  the  accomodation  of  the  drawer,  and  the 
acceptance  is  by  an  officer  of  the  corporation  authorized  by  it  to 
accept  it  if  the  drawer  has  funds  in  the  company's  hands,  the  holder 
is  not  affected  by  the  extrinsic  fact  of  the  want  of  funds,  and  hence 
can  recover  upon  the  acceptance  if  he  is  a  bona  fide  holder  for 
value. 

In  Madison  Plank  Road  Co.  v.  Watertown  Co.,  7  Wis.  59,  the  plain- 
tiff company,  in  order  to  aid  the  defendant  company  to  build  a 
plank  road  which  was  a  continuation  of  the  road  of  the  former, 
agreed  to  guarantee  a  loan  made  to  the  Watertown  Co.  After  the 
road  was  built,  the  Madison  Co.  refused  to  pay  on  the  default  of  the 
Watertown  Co.  The  supreme  court  held  that  the  Madison  Co.  had 
no  corporate  power  to  guarant}'  payment  of  the  debt  of  the  other 
company,  and  when  pressed  with  the  argument  that  by  the  building 
of  the  road  the  Madison  Co.  had  received  the  benefit  which  had  in- 
duced it  to  guarantee  the  debt,  the  court  said  that  it  was  a  contract 
ultra  vires,  and  could  not  be  enforced. 

The  leading  case  in  England  upon  this  point  is  Colemand  v. 
Eastern  Counties  R.  Co.,  10  Beav.  1.  In  this  case,  under  powers 
contained  in  the  acts  of  Parliament,  the  Eastern  Counties  R.  Co., 
and  the  Eastern  Union  Ry.  Co.,  had  built  a  railroad  from  London 
to  Manningtree,  a  place  about  ten  miles  from  the  port  of  Harwich. 
The  directors  of  these  companies  conceived  that  it  would  add  to  the 
traffic  and  profit  of  the  railwaj'  if  a  steam-packet  company  could  be 
formed  communicating  between  Harwich  and  the  northern  ports  of 
Europe, and  they  accordingly  took  proceedings  for  the  establishment 
of  such  a  companj'.  It  was  intended  that  the  railway  companies 
should  guarantee  to  the  shareholders  in  the  steam-packet  company 
a  dividend  of  5  per  cent,  per  annum  upon  their  paid  up  capital  until 
the  dissolution  of  the  company,  and  that  then  the  whole  paid  up  capi- 
tal should  be  paid  by  the  railway  companies  to  the  shareholdersof  the 
packet  company  in  exchange  for  a  transfer  of  its  assets.  On  a  bill 
"by  a  shareholder  of  the  railway  company  to  enjoin,  it  was  held  that 
no  such   Contract    was   within   the  power  of  the  railway  comjjanies, 


42  ULTRA  VIRES  [vOL  I 

Notes 

and  further  proceedings  in  the  matter  were  enjoined.  Cited  and 
approved  in  Pearce  :■.  Madison  &  Indianapolis  R.  Co.,  21  How.  (U. 
S.)  441. 

Where  the  general  railroad  laws  declare  that  any  railroad  com- 
pany may,  by  means  of  subscription  to  the  capital  stock  of  any  other 
company,  or  otherwise,  aid  such  company  in  the  construction  of  its 
road  for  the  purpose  of  forming  a  connection  between  said  last  men- 
tioned road  and  the  road  owned  by  the  company  furnishing  such 
aid,  and  authorizes  two  or  more  railroad  companies  whose  lines  are 
connected,  to  enter  into  any  arrangement  for  their  own  benefit, 
such  last  mentioned  companies  have  power  to  enter  into  an  arrange- 
ment with  each  other  for  the  purpose  of  securing  a  uniform  gauge 
for  the  connecting  roads,  and  to  make  it  apart  of  such  arrangement 
that  one  or  more  of  the  companies  should  guarantee  the  payment  of 
the  interest  coupons  issued  by  another  company.  Connecticut  Mut. 
Life  Ins.  Co.  v.  Cleveland  C.'&  C.  R.  Co.,  41  Barb.  (N.  Y.)9. 

If  the  guarantors,  under  the  circumstances  above  named,  have  the 
g-eneral  power  to  make  the  guarantee,  it  is  immaterial  as  between 
third  parties,  without  notice,  and  such  guarantors,  whether  their 
acts  are  authorized  or  ratified  by  a  vote  of  the  stockholders  in 
accordance  with  the  proviso  of  the  general  railroad  statutes  of  the 
state  giving  such  authority  ;  this  proviso  being  intended  for  the 
protection  of  the  shareholders  and  relating  altogether  to  the  mode 
or  manner  of  the  execution  of  the  power.     Ibid. 

Where  a  statute  confers  express  authority  upon  a  corporation  to 
guarantee  the  bonds  of  another  corporation,  a  mere  failure  on  the 
part  of  the  guaranteeing  company  to  pursue  the  mode  specified  in 
the  statute  will  not  invalidate  such  guarantee  in  the  hands  of  a  botia 
fide  holder.  Peoria,  etc.,  R.  Co.  v.  Thompson,  103  111,  187,  7  Am.  & 
Eng.  R.  Cas.  101  ;  Bradley  v.  Ballard,  55  111.  413  ;  Arnot  v.  Erie  R. 
Co.,  67  N.  Y.  315. 

Accordingly  in  Atchison,  T.  &  S.  F.  R.  Co.  v.  Fletcher,  35  Kan. 
236,  24  Am.  &  Eng.  R.  Cas.  34,  it  was  held  that  if  under  the  provi- 
sions of  its  charter,  and  the  terms  of  subsequent  statutes,  a  cor- 
poration g-ives  its  guarantee  of  a  negotiable  instrument  which  it 
takes  as  its  own  and  sells,  it  can  be  held  to  its  guarantee  by  an 
innocent  holder  for  value  and  without  notice  of  the  origin  of  its 
title,  and  this,  irrespective  of  the  question  whether  the  guarantee  of 
the  particular  instrument  when  made,  was  idtra  vires  in  that  par- 
ticular instance. 

Where  an  agent  of  a  corporation  who  is  duly  authorized  to  sign 
"all  notes  and  business  paper"  of  the  corporation,  gives  accommo- 
dation notes  in  the  name  of  the  company,  the  latter  is  liable  on 
them  to  a  holder  who  took  them  in  good  faith  for  value,  and  before 
maturity,  notwithstanding  the  fact  that  the  agent  had  no  authority 
to  execute  such  notes  for  the  purposes  for  which  they  were  given. 
Bird  V.  Daggett,  97  Mass.  494. 

The  general  doctrine  of  the  law  is  that  where  a  corporation  has 
the  power,  under  any  circumstances,  to  issue  negotiable  paper,  a 
bona  fide  holder  has  a  right  to  assume  that  it  was  issued  under  cir- 
cumstances which  give  the  requisite  authority,  and  such  paper  is 
no  more  liable  to  be  impeached  for  any  infirmity  in  the  hands  of 
such  a  holder  than  any  other  commercial  paper.  Gelpcke  v.  City 
of  Dubuque,  1  Wall.  (U.  S. )  175.  And  this  doctrine  is  applied  to 
commercial   paper  made  by  a  corporation  for  the  accomodation  of 


B  CAS]  SET-OFF  43 

Columbia  Nat.  Bank  v.  German  Nat.  Bank 

a  third  person,  when  in  the  hands  of  a  bona  fide  holder  who  has  dis- 
counted it  before  maturity  on  the  faith  of  its  being-  business  paper. 
Mechanics'  Banking-  Association  v.  White  L,ead  Co.,  35  N.  Y.  505  ; 
Bird  V.  Dag-g-ett,  97  Mass.  494  ;  Monument  National  Bank  v.  Globe 
Works,  101  Mass.  57. 


Columbia  Nat.  Bank 

V. 

German  Nat.  Bank. 

[Supreme  Court  of  Nebraska,  Dec.  8,  i8g8.) 

Evidence — Testimony — Definitions. — "Testimony"  and  "evidencc"^ 
are  not  synonymous  terms  ;  the  latter  is  the  generic  term,  and  the 
former  applicable  to  a  species  or  kind  of  evidence. 

Bills  of  Exceptions. — If  a  bill  of  exceptions,  which  purports  to  con- 
tain all  the  evidence,  is  submitted  to  the  adverse  party  for  exami- 
nation and  amendment,  and  he  returns  it  with  an  indorsement  that 
he  has  no  amendments  to  prooose,  it  will  be  presumed  to  contain  all 
the  evidence.     Cattle  v.  Haddox,  14  N.  W.  803,  14  Neb.  59. 

Same — Certificate. — The  use  of  the  word  "testimony"  for  "evi- 
dence," in  the  certificate  of  the  trial  judge  in  the  allowance  of  a 
bill  of  exceptions,  if  the  meaning  is  obvious,  or  it  is  clear  that  the 
latter  is  intended,  will  not  render  the  document  inoperative. 

Transfer  of  Deposit  by  Check. — A  check  upon  a  bank  by  a  deposi- 
tor operates  a  transfer  of  its  amount  to  the  payee  if  on  deposit  at 
the  time  of  presentation,  and  the  payee  or  holder  may,  on  refusal  of 
payment,  maintain  a  suit  on  the  instrument  for  the  recovery  of  its 
stated  sum. 

Right  of  Bank  to  Set-off  Deposit  against  Indebtedness.* — As 
against  the  holder  of  a  check  against  an  account  of  a  depositor,  the 
bank  of  deposit  may  not  apply  the  amount  of  the  account  to  the 
pa3'ment  of  the  indebtedness  of  the  depositor  to  the  bank  which  is 
not  yet  due,  although  the  depositor  may  be  insolvent. 

Defenses — Estoppel. — Two  defenses  irreconcilably  inconsistent 
may  not  be  enforced,  and  the  position  assumed  by  the  party  prior  to 
the  suit  relative  to  the  facts  and  circumstances  involved  in  the 
transactions  drawn  into  question  will  prevail. 

(Syllabus  by  the  Court.) 

Error  by  plaintiff  to  Lancaster  county  district 
court.      Reversed. 

J.  H.  Broady  and  E.  E.  Broxuii,  for  plaintiff  in 
error, 

N.  C.  Abbott  ?ind  Abbott,  Selleck  &  Lane,  for  de- 
fendant in  error. 

*See  notes  at  end  of  case. 


44  SET-OFF  [vol  I 

Columbia  Nat.  Bank  z'.  German  Nat.  Bank 

Harrison,  C.  J.     On  June  2,  1893,  the  State  Bank 

of  Courtland  was  eng-ao-ed   in  the  business  sug-g-ested 

by  its   name,   and  at  the  place  thereby   indicated,  and 

in  the    course  of  such   business  drew    and 

€ase  stated.  p  ,      ,  ,  ,         ,  <  i        /^ 

forwarded  an  order  or  a  check  on  the  Ger- 
man National  Bank  of  Lincoln  in  favor  of  "J.  H.  Mc- 
Clay,  Cashier,"  he  being- 'such  officer  of  the  Columbia 
National  Bank  of  Lincoln,  for  the  sum  of  S898,  and  in- 
closed the  same  in  an  envelope  addressed,  "Columbia 
National  Bank,  Lincoln,  Nebraska,"  and  mailed  the 
packag-e.  On  June  3d,  it  did  likewise  in  relation  to  an 
order  or  check  similar  in  form  and  substance  in  the 
material  portions  except  amount,  which  was  $3.88. 
The  instruments,  o^"  checks  we  may  call  them, — for, 
whatever  may  be  the  proper  technical  desig^nation,  they 
were,  in  effect,  checks,  and  to  be  considered  as  such 
(Bull  f.  Bank,  123  U.  S.  109,  8  Sup.  Ct.  62),— were 
received  through  the  mail  by  the  Columbia  National 
Bank  on  June  7,  1893,  and  were,  in  the  morning-  of  the 
day  of  reception,  presented  to  the  drawee  for  payment, 
which  was  refused.  The  Bank  of  Courtland  had  an 
account  with  the  German  National  Bank,  and  on  the 
morning-  of  June  7,  1893,  there  was  to  the  credit  of  the 
former  the  sum  of  S983,  which  was  subjeet  to  check. 
At  the  close  of  business  on  June  6,  1893,  the  Bank  of 
Courtland  suspended,  and  passed  into  the  hands  of  a 
receiver,  who  afterwards  continued  in  possession  for 
the  sole  purpose  of  adjustment  of  its  affairs.  The 
Bank  of  Courtland  was  a  debtor  of  the  German  Nat- 
ional Bank,  the  indebtedness  being-  evidenced  by  pro- 
missory notes  which  were  payable  on  dates  subsequent 
to  June  7,  1893,  or  they  were  not  then  due,  but  on  that 
date  the  amount  which  was  shown  by  the  open  account 
in  favor  of  the  Bank  of  Courtland  was  by  the  German 
National  Bank  credited  as  a  payment  on  one  of  the  notes 
to  which  we  have  just  referred,  and  the  account  bal- 
anced or  closed.  In  this,  an  action  by  the  Columbia 
National  Bank  ag-ainst  the  German  National  Bank  to 
recover  the  amount  of  the  two  checks  sent  it  b}'  the 
bank  at  Courtland,  the  defendant  was  accorded  a  judg- 


B  CAS]  SET-  OFF  45 

Columbia  Nat.  Bank  v.  German  Nat.  Bank 

ment,    to    reverse  which    the   plaintiff    has  prosecuted 
error  proceeding's  to  this  court. 

What  may  not  be  inaptly  termed  a  preliminary  ques- 
tion, which  has  its  origin  in  the  condition  of  the  record 
as  presented,  is  raised  and  urged  for  the  defendant. 
The  certificate  of  the  trial  judge  of  the 
allowance  of  the  bill  of  exceptions  recites  uiVny-^'iiJfllittoi'is. 
that  the  document  contains  "all  the  testi- 
mony adduced  or  offered  on  the  hearing  of  the"  cause, 
and  in  other  portions  of  its  statements  the  reference  in 
each  is  to  "testimony."  It  is  of  this  it  is  objected 
that  it  is  insufficient,  inasmuch  as  testimony  means 
but  a  part  of  the  evidence,  and  the  certificate  should 
show  that  all  the  evidence  was  included  in  the  bill  of 
exceptions.  It  is  incontestably  true  that  "testimony" 
and  "evidence"  are  not  synonymous  terms;  that  testi- 
mony is  but  a  kind  or  species  of  evidence;  that  the 
former  is,  in  a  trial,  the  portion  of  the  latter  which  may 
be  given  orally  by  witnesses;  that  the  latter  is  inclu- 
sive of  the  testimony  of  witnesses,  documents,  etc.; 
that  "evidence"  is  the  generic  term  (Printing  Co.  v. 
Morss,  60  Ind.  153);  and  if  we  were  confined  to  the 
certificate,  and  could  look  no  further,  it  might  be  fatal 
to  the  bill  of  exceptions  (Printing  Co.  v.  Morss,  supra; 
Lindley  v.  Dakin,  13  Ind.  388).  But  an  examination 
of  other  parts  of  the  document  reveals  that 
it  was  presented,  as  the  law  required,  to  |i'o" s."*^ ^"^ '" 
the  adverse  party  for  examination  and  pro- 
posal of  amendments,  and  returned  indorsed,  "I  here- 
with return  the  within  bill  of  exceptions,  and  suggest 
no  amendments,"  over  the  signature  of  counsel.  From 
such  an  indorsement  the  presumption  arises  that  the 
bill  of  exceptions  on  which  it  appears  contains  all  the 
evidence,  though  the  certificate  of  the  trial  judge  mav 
not  so  state.  Cattle  v.  Haddox,  14  Neb.  59,  14  N.AV. 
803.  There  being  nothing  in  this  record  to  indicate  to 
the  contrary,  such  presumption  must  be  indulged  and 
govern.     Furthermore,  if  the  certificate  be  , 

read  in  connection  with  other  matters  of  the 
bill  of  exceptions  to  w^hich  it  is  attached,  it  is  clearly 


46  SET-OFF  [vol  I 

Columbia  Nat.  Bank  v.  German  Nat.  Bank 

disclosed  that  "testinion\^"  therein  is  used  as  the  equi- 
valent of  "evidence"  ;  and,  when  this  is  true,  it  is  suffi- 
cient. Harris  v.  Tomlinson,  130  Ind.  426,  30N.K,214. 
It  is  the  contention  for  the  plaintiff  that  the  judg-- 
ment  of  the    trial   court    was  violative  of  the  rules  that 

a  check  drawn  on  funds  in  a  bank  is  an 
bvThJrk  "'^ '*'^''''*''  appropriation  of  its  amount  in  favor  of  the 

holder,  and  on  refusal  of  its  payment,  where 
the  funds  have  not  been  drawn  out  prior  thereto,  the 
holder  may  sue  for  the  recovery  of  the  amount  (Ponner 
V.  Smith,  31  Neb.  107,  47  N.  W.  632);  and,  further, 
that  the  bank  could  not,  as  ag-ainst  the  rig-hts  of  the 
holder  of  the  checks,  apply  the  deposit  or  money 'on 
open  account  subject  to  check  to  the  payment  of  a  debt 
of  the  depositor  to  the  bank  which  had  not  matured  or 
was  not  due.  We  believe  thes^  propositions  advanced 
for  the  plaintiff  are  sound,  and  will  adopt  them.      They 

are  thoroug-hly  supported  by  precedent,  and 

we  think  the  logic  and  reason  applicable 
to  the  events  and  circumstances  of  the  matter  in 
hand.  Counsel  for  plaintiff  have  cited  the  follow- 
ing- cases,  which  fully  sustain  their  position :  Bank 
V.  Robinson,  97  Ky.  552,  31  S.  W.  136;  Fourth 
Nat.  Bank  v.  Citv  Nat.  Bank,  68  111.  398;  Fuller  v. 
Steiglitz,  27  Ohio"  St.  355;  Jones  v.  Bank,  10  Wkly. 
Notes  Cas.  102  ;  Bank  v.  Jones,  2  Pennv.  377  ;  Oatman 
V.  Bank,  77  Wis.  501,  46  N.  W.  881  ;  Bank  v.  Ritzin- 
ger,  20  111.  App.  27  ;  Skunk  v.  Bank,  16  Wkly.  Law 
Bui.  353  ;  Spaulding-  v.  Backus,  122  Mass.  553. 

It  was  of  the  evidence  that  on  the  morninof  of  the  7th 
of  June,  1893,  the  cashier  of  the  defendant  bank  had  a 

telephonic  conversation  with  the  president 
seufrtSV"  of  the  Bank  of  Courtland,  in  which  the 
affsiiist  imieMed-    propriety   of    the  action   of    the    former    in 

appUnng-  the  amount  of  the  open  account  of 
the  latter  as  a  payment  on  its  debt  to  the  former  which 
was  not  yet  due  was  discussed,  and,  soon  after  this 
conversation  was  closed,  the  president  of  the  Bank  of 
Courtland  sent  a  telegram  to  the  said  cashier,  in  which 
he  attempted,  for  the  bank,  to  authorize  such  action  as 


B  CAS]  SET-OFF  47 

Notes 

we  have  indicated.  The  teleoram  was  of  date  the  7th 
of  June,  and  stated  :  "Apply  our  balance  on  our  indebt- 
edness. State  Bank  Courtland."  But  all  this  was 
futile,  for  the  Courtland  Bank  had,  on  the  evening-  of 
the  6th  of  June,  passed  from  the  control  of  its  officers 
into  the  hands  of  the  officers  of  the  state,  and  it  was 
no  long-er  a  g'oing-  concern. 

It  appeared   in   evidence   that   of   the   amount  of  the 
open  account  of  the  Courtland  Bank  with  the  defend- 
ant at  or  about  the  times  of  the  transactions  involved 
herein   there   was  the  sum  of  S590.05,  the  amount  of  a 
draft  received   from  the   bank  at  Courtland,  and  with 
which   it   was   credited,   and   of    which    payment    was 
refused    on    presentation   to  the    bank    in    Chicag-o   on 
which  it  was  drawn.     It  was  subsequenth^  paid,  but 
this  fact  cuts  no  figure  in  the  present  controversy.     It 
is  now  urg-ed  for  defendant  that  it  had  the  rig-ht,  when 
the   payment  of   this   draft   was  refused,  to 
charg-e"its  amount  back  ag-ainst  the  account    J^^^"s^'^-Est»p- 
of  the  Courtland  Bank,  and,  this  being  true, 
there  was  not  mone}^  to   pay  the   checks  of  plaintiff  in 
the  hands  of  defendant,  and  its  refusal  of  payment  was 
warranted,   and   must  be   upheld.      iVs    we    view   this 
matter  as  developed  in  the  evidence,  the  defendant  has 
furnished   by    its   action   a   solution    of   this   question. 
On  the  morning-  of  the  7th  of  June  it  had  no  hesitanc3\ 
when  it  desired  to  apply  the  amount  of  the  balance  of 
the  account  of  the  Bank  of  Courtland  to  the  pa3^nient 
of  its  debt  to  the  defendant,  in   considering-  the  whole 
of  such  amount  as  belong-ing-  unqualifiedly  to  the  Bank 
of  Courtland,  and  will  not  be  heard  to  assert  now,  if 
such  money  cannot  be  applied  as  it  was  then  placed,  it 
was  but  conditionally  the  property  of  the  Bank  of  Court- 
land,  and  we  will  now  take  another  and  different  posi- 
tion in    reg-ard  to  it.     It  follows  from  what   has   been 
said  that  the  judg-ment  of  the  trial  court  was  wrong-, 
and  it  must  be  reversed.     Reversed  and  remanded. 


Bank's  Set-oflF. — The  bank  may  apply  the  balance  of  -a  depositor 
on  a  debt  due  it  from  him,  maturing-  upon  a  day  stated,  althoug-h 
there  is  a  check  outstanding  in  favor  of  a  third   person,  and  the  de- 


48  SET-OFF  [vol  r 

Notes 

positor  has  made  an  assif^^ninent  for  the  benefit  of  his  creditors. 
Fort  Dearborn  Nat.  Bank  z\  Blumensweis',  46  111.  App.  297;  Schuler 
z\  Laclede  Bank,  27  Fed.  Rep.  424.  See  aLso  Merchants',  etc.,  Bank 
V.  Mej-er,  56  Ark.  499. 

But  until  the  debt  matures  there  is  no  lieu  or  right  of  set-oif. 
Commercial  Nat.  Bank  v.  Proctor.  98  111.  558  ;  Merchants'  Nat.  Bank 
z'.  Ritzing-er,  20  111.  App.  27  ;  Chicago  Fourth  Nat.  Bank  v.  Citv  Nat. 
Bank,  68  111.  398;  State  z'.  Beach  (Ind.  1896),  43  N.  E.  Rep.  949  ; 
Lockwood  z'.  Beckwith,  6  Mich.  168,  72  Am.  Dec.  69  ;  Zelle  v.  Ger- 
man Sav.  Inst.,  4  Mo.  App.  401  ;  Van  Allen  v.  American  Nat.  Bank, 
3  Lans.  (N.  Y.)  517  ;  Beckwith  v.  Union  Bank,  4  Sandf.  (N.  Y.)  604, 
affirmed  in  9  N.  Y.  211  ;  Bradley  v.  Angel,  3  N.  Y.  475;  Myers  v. 
Davis,  22  N.  Y.  489  ;  Martin  v.  Kunzmuller,  37  N.  Y.  396  ;  Jordan  v. 
National  Shoe,  etc..  Bank,  74  N.  Y.  467,  30  Am.  Rep.  319;  Newcomb 
V.  Almy,  96  N.  Y.  308;  Richards  v.  La  Tourette,  119  N.  Y.  54  ;  Ful- 
ler V.  Steiglitz,  27  Ohio  St.  355,  22  Am.  Rep.  312  ;  Oatman  v.  Bata- 
vian  Bank,  77  Wis.  501,  20  Am.  St.  Rep.  136.  Compare  Boettcher  v. 
State  Nat.  Bank,  15  Colo.  16. 

Same — Insolvency  of  Depositor. — But  upon  the  insolvenc3'  of  the 
depositor,  the  right  of  set-off  has  been  allowed,  although  the  bank's 
liability  was  contingent  merely.  Citizens'  Bank  v.  Kendrick,  92 
Tenn.  437,  36  Am.  St.  Rep.  96. 

A,  being  debtor  to  a  bank  in  a  note  discounted  by  the  bank,  died 
before  the  note  became  due,  and  his  estate  proved  to  be  insolvent. 
The  bank,  at  the  time  of  his  death,  had  mone3'^  of  his  on  deposit. 
It  was  held  that  the  bank  was  entitled  to  apply  such  deposit  mone3' 
to  the  paj-meut  of  the  note,  notwithstanding  there  might  be  debts 
outstanding  against  A's  estate  of  superior  dignitj-  to  that  of  the 
note.     Ford  z\  Thornton,  3  Leigh  (Va.)  695. 

Same — Moneys  Must  be  Property  of  Depositor. —As  against 
third  parties,  the  indebtedness  of  the  bank  that  becomes  sub- 
ject to  this  right  of  lien  must  have  arisen  from  the  deposit 
of  moneys  or  funds  that  belonged  to  the  depositor  himself. 
Farmers',  etc.,  Bank  v.  Farwell,  58  Fed.  Rep.  633.  In  this  case 
a  partA',  being  indebted  to  a  bank  and  also  to  a  firm,  assigned  to 
the  latter  his  interest  in  certain  insurance  policies.  He  also  prose- 
cuted actions  on  the  policies  in  his  own  name  and  right,  testifj'ing 
that  he  solel\'  was  interested  therein.  Before  this  he  had  refused  to 
assign  the  policies  to  the  bank,  but  told  the  officers  that  when  he 
collected  the  proceeds  he  would  deposit  them,  and  the  bank  could 
repay  itself;  and  the  bank,  without  knowledge  of  the  assignment, 
and  relying  upon  these  statements,  gave  him  further  credit  and 
made  him  other  loans.  Afterwards,  upon  a  settlement  of  certain  of 
the  actions  above  named,  the  attorney  for  the  assignor,  without  the 
latter's  knowledge  or  that  of  the  assignee,  deposited  the  proceeds  in 
the  bank.  It  was  held  that  by  the  assignment  the  whole  beneficial 
interest  in  the  policies  passed  to  the  assignee  and  entitled  him,  as 
against  the  bank,  to  the  proceeds  of  the  settlement  ;  and  further, 
that  the  assignee  was  not  estopped  to  claim  the  money  because  of 
his  failure  to  notify  the  bank  of  the  assignment,  nor  for  suffering 
the  prosecution  of  the  actions  in  the  name  of  the  assignor, as  he  was 
without  knowledge  of  the  fact  of  the  assignor's  indebtedness  to  the 
bank,  or  that  the  latter  intended  to  grant  him  further  credit. 


B  CAS]  RECEIVERS  49 

Farmers'  Nat.  Bank  of  Owatonna  v.  Backus 


Farmers'  Nat.  Bank  op  Owatonna 

V. 

Backus  e^  al. 

[Siipretne  Court  of  iMinnesota,  Nov.  22,  i8g8.) 

National  Banks — Existence  after  Expiration  of  Charter. — A  national 
bank,  after  the  expiration  of  the  time  limit  of  its  charter,  continues 
to  exist  as  a  person  in  la\Y,  capable  of  suing  and  being-  sued,  until 
its  affairs  are  completely  settled. 

Receiver's  Expenses  and  Fees — Liability  of  Petitioner.* — Held, 
upon  the  special  facts  of  this  case,  that  the  trial  court  did  not  err 
in  ordering-  the  appellant  to  pay  the  balance  of  the  fees  and  expenses 
of  the  receiver  herein. 

(Syllabus  by  the  Court.) 

Appeal  by  plaintiff  from  Ramsey  county  district 
court.     Aiffirmed. 

Sazuyer  ^  Sperry,  for  appellant. 

Stevens,  O' Brieii,  Cole  &  Albrecht,  for  respondent. 

Start,  C.  J.  The  respondent,  James  A.  Owens, 
presented  his  verified  petition  to  the  .district  court  of 
the  county  of  Ramsey,  which  set  forth  substantially 
these  facts  :  The  petitioner, on  July  3,  1895,  case  stated 

was  by  order  of  the  court  appointed  receiver 
in  this  action  of  the  real  estate  which  was  the  subject- 
matter  thereof  (conceded  on  the  arg-ument  to  be  an 
apartment  house  on  which  the  plaintiff  had  a  second 
mortgrag-e),  and  has  continued  to  act  as  such  receiver  to 
the  present  time.  That  the  defendant  Hiram  Backus 
appealed  from  the  order  to  this  court,  gfiving-  to  the 
plaintiff  in  this  action  a  bond  conditioned  for  the  pay- 
ment to  it  of  such  loss  as  it  might  sustain  on  account 
of  the  appeal.  Pendino-  the  appeal,  the  income  of  the 
property   was    paid    to     the    defendant.        This    court 

*See  note  at  end  of  case. 
B  CAS— 4 


50  RECEIVERS  [vol  I 

Farmers'  Nat.  Bank  of  O-.vatonna  z'.  Backus 

affirmed  the  order  appointingf  the  receiver.  64  Miun. 
43,  66  N.  W.  5.  Thereupon  the  plaintiff,  by  action  on 
the  bond,  recovered  from  the  defendant  and  his  sure- 
ties the  sum  of  S3, 100,  as  damag-es  for  the  income  from 
the  property  it  was  unable  to  collect  throug-h  the  re- 
ceiver pending-  the  appeal.  The  petition  further  sets 
forth  the  amount  of  respondent's  costs  and  expenses 
necessarily  incurred  in  the  receivership,  the  amount  of 
his  reasonable  fees  for  services,  the  amount  of  money 
which  actually  came  to  his  hands  as  receiver  from  the 
property,  which  was  less  than  his  expenses  and  fees  ; 
also,  that  the  property  had  been  lost  by  foreclosure  of 
a  prior  lien,  that  the  defendant  was  insolvent,  and  that 
the  receiver  had  no  money  or  funds  in  his  hands  to  pay 
the  balance  of  the  fees  and  expenses.  The  prayer  of 
the  petition  was  that  the  plaintiff  be  required  to  pa}' 
such  balance.  The  district  court  made  its  order  requir- 
inof  the  plaintiff  to  show  cause  why.  the  prayer  of  the 
petitioner  should  not  be  granted.  The  plaintiff  appeared 
specially  in  response  to  the  order,  filed  an  affidavit  to 
the  effect  that  its  charter  expired  by  limitation,  and  it 
went  into  voluntar}^  liquidation,  which  had  been  con- 
summated, and  that  at  the  date  of  the  order  its  corporate 
existence  had  ceased,  and  on  this  g-round  objected  to 
the  jurisdiction  of  the  court.  The  objection  was  over- 
ruled, and  it  then  appeared  g-enerally  ;  but,  so  far  as 
appears  from  the  record,  it  did  not  put  in  issue  any  of 
the  facts  of  the  petition,  or  question  the  propriety, nec- 
essity, or  reasonableness  of  the  respondent's  charges 
for  expenses  and  fees  as  receiver.  The  trial  court 
found,  among  other  facts,  that  the  respondent  was  ap- 
pointed receiver  at  the  request  of  and  for  the  benefit  of 
the  plaintiff,  and  adjudged  the  balance  due  to  the  re- 
spondent for  such  expenses  and  fees  to  be  S578.52,  and 
ordered  that  the  plaintiff  pay  this  amount  to  the  re- 
ceiver.    The  plaintiff  appealed  from   this  order. 

The  appellant  here  insists  on  two  propositions  only: 
(1)  That  the  trial  court  erred    in   overruling  the  ob- 
jection to  its   jurisdiction.      It  is  urged  that  after  the 


B  CAS]  RECEIVERS  51 

Farmers'  Nat.  Bank  of  Owatonna  v.  Backus 

expiration  of  the  appellant's  charter,  and  it  had  passed 
throug-h   liquidation,    "the   law   determined 
its  status,— it  was  dead.     How  could  an  or-  Sn'Aner" 
der  of  the  district   court  g-alvanize  it    into  t^^;P;|:,\'|*"  *' 
life?"     It  seems  to  have  done  so,  for  since 
the  making-  of  the  order  the  appellant  has  been  very 
much  alive.     It  appealed  to  this  court,  g-ave  a  superse- 
deas bond,  and  presented  a  vig-orous  and  able  arg-ument 
on  another  question  involved  in  this  appeal.    A  national 
bank,  after  the  expiration  of  the  time  limit  of  its  char- 
ter, continues  to  exist  as  a  person  in  law,  capable  of 
suing-  and  being"  sued,  until  its  affairs  and  business  are 
completely  settled.     22  Stat.    162,  §  7  ;  National  Bank 
V.  Insurance  Co.,    104  U.  S.  54.      The  appellant  com- 
menced this  action,  and  the   business  then   undertaken 
b)"  it  has  not  as  yet  been  fully  completed.     The  objec- 
tion to  the  jurisdiction  of  the  court  was  properly  over- 
ruled. 

2.  The  second  proposition  is  that,  a  receiver  being- 
an  officer  of  the  court,  subject  to  its  control,  and  not  to 
that  of  the  party  asking-  for  his  appointment, 
his  fees  and  expenses  are  charg-eable  solely  JeHs'^'aud'^'Fefs- 
against  the  fund  w^hich  comes  into  his  hands  |i*ner.^' *^^*'^'' 
as  receiver.  The  parties  to  the  action  are 
not  personally  liable  therefor,  unless  they  have  g-iven 
a  bond  or  other  contract  to  pay  them,  as  a  condition  of 
the  appointment  or  continuance  of  the  receiver.  This 
may  be  conceded  to  be  correct  as  a  g-eneral  rule,  but 
there  are  cases  where  the  court  will,  if  the  fund  in  court 
be  insufficient  to  g-ive  the  receiver  reasonable  compen- 
sation and  indemnity,  require  the  parties  at  whose 
instance  he  is  placed  in  possession  of  the  property  to 
pay  him.  Johnson  v.  Garrett,  23  Minn.  565;  Knick- 
erbocker f.  Mining-  Co.,  67  111.  App.  293  ;  Hig-h,  Rec. 
§7%. 

The  special  facts  of  this  case  fully  justify  the  order 
of  the  trial  court.  It  is  not  a  case  where  the  part}' 
asking-  for  the  appointment  of  a  receiver  is  required  to 
pay  the  receiver's  charg-es  without  having-  received  any 
benefit  from  the  receivership.  It  is  a  case  where  the 
benefits  so  received  were  more  than  five  times  as  great 


52  RECEIVERS  [vol  I 

Note 

as  the  amount  required  to  be  paid.  It  was  only  by  the 
appointment  of  the  respondent  as  receiver,  and  his  ac- 
ceptance thereof,  and  services  as  such  in  this  case,  that 
the  appellant  was  enabled  to  obtain  the  S3, 100  recovered 
of  the  defendant  and  his  sureties.  After  the  defendant 
appealed  from  the  order  appointing-  the  receiver,  and 
pending-  the  appeal,  he  received  the  income  of  the 
property,  which  would  otherwise  have  been  paid  to  the 
receiver  ;  and  the  effect  of  the  decision  of  this  court 
affirming-  the  order  was  to  establish  the  rig-ht  of  the 
receiver  to  such  income  from  the  date  of  his  appoint- 
ment. Bank  v.  Backus,  64  Minn.  43,  66  N.  W.  5.  If 
the  defendant  had  been  solvent,  and  the  receiver  had 
recovered  such  income  from  him,  the  fund  would  have 
been  charg-eable  with  the  receiver's  fees  and  expenses. 
But,  the  defendant  being-  insolvent,  the  money  was 
recovered  on  his  bond  in  an  action  by  the  appellant*. 
The  basis,  however,  of  such  recovery,  must  have  been 
the  fact  that  the  receiver  was  kept  out  of  the  possession 
of  the  property  pending-  the  appeal  by  reason  thereof, 
and  was  entitled  to  the  income  of  the  property  during- 
such  time.  The  fund  received  by  the  appellant  came 
to  it  by  reason  of  the  receivership,  and  not  otherwise  ; 
and  equitably  it  oug-ht  to  have  paid  over  to  the  receiver 
so  much  of  it  as  was  necessary  to  indemnify  him  for 
his  expenses,  and  to  compensate  him  for  his  services, 
in  the  receivership.  It  would  be  g-rossly  inequitable 
to  permit  the  appellant  to  appropriate  the  entire  fund 
to  its  own  use,  and  leave  the  respondent  unpaid  for  his 
services,  and  without  reimbursement  for  the  expenses 
of  a  receivership  undertaken  at  its  request,  and  for  its 
sole  benefit,  whereby  it  secured  $3,100.  The  order  of 
the  court  requiring-  the  appellant  to  pay  the  receiver  is, 
in  effect,  the  enforcement  of  the  receiver's  equitable 
right  to  be  paid  from  a  fund  g-rowing-  out  of  the  receiv- 
ership.    Order  affirmed. 

NOTE. 
Compensation  of  Receivers — Liability  of  Petitioners. — If  the  fund  in 
court  is  insufficient  to  afford  an  adequate  compensation  to  the  re- 
ceiver, the  parties  at  whose  instance  the  receiver  was  appointed 
may  be  required  to  provide  the  means  of  payment.  Tome  v.  King-, 
64  Md.  166. 


B  CAS]  PLEDGES  OP  STOCK  53 

National  Bank  of  Commerce  v.  Allen 


National  Bank  Of  Commerce  In  Denver 
Allen  el  al. 

{Circuit  CoiM-t  of  Appeals,  Eighth  Circuit,  Oct 31,  1898.) 

Corporations  as  Endorsers. — A  corporation  formed  to  carry  on  a 
Ttiercantile  business  may  pay  for  the  requisite  merchandise  by  en- 
dorsing- the  outstanding  paper  of  the  seller. 

Agency.— A  corporation  does  not  become  the  agent  of  a  bank 
merely  because  the  bank  holds  a  part  of  its  stock  in  pledge  to  secure 
a  debt. 

Same. — Nor  is  the  relation  of  principal  and  agent  established,  as 
between  two  corporations,  because  an  officer  or  employee  of  one  is 
a  member  of  the  board  of  directors  of  the  other. 

Preference  of  Creditors. — A  bank  holding  a  large  portion  of  the 
stock  of  a  corporation  indebted  to  it,  as  security  for  the  debt,  is  en- 
titled to  use  its  influence  to  induce  the  corporation  to  sell  its  effects 
and  apply  the  proceeds  to  the  extinguishment  of  such  debt,  a  pri- 
vate corporation  having,  as  a  general  rule, the  same  power  to  prefer 
creditors  as  that  possessed  by  an  individual. 

Right  to  Vote  Pledged  Stock.* — Where  corporate  stock  is  pledged 
to  secure  a  debt,  the  right  to  vote  it  under  the  laws  of  Colorado,  in 
the  absence  of  an  express  agreement  to  the  contrary,  remains  with 
the  pledgor. 

Banks— Corporate  Debts— Public  Notice. — A  bank  holding  cor- 
porate stock  as  collateral  security  for  a  debt  owing  to  it  by  the  cor- 
poration, is  under  no  obligation  to  give  public  notice  of  the  amount 
of  the   debt. 

Creditor's  Bill — Intervention. — A  judgment  creditor  may  intervene 
after  a  creditor's  bill  has  been  properly  filed  in  a  federal  court, 
although  his  judgment  is  for  less  than  S2,000. 

Appeal  by  defendants  from  the  Circuit  Court  of  the 
United  States  for  the  District  of  Colorado.    Remanded. 

This  was  a  creditors'  bill,  which  was  exhibited  by 
Georg-e  A.  Allen  and  others,  the  appellees,  composingf 
the  firm  of  Paris,  Allen  &  Co.,  ag-ainst  the  National 
Bank  of  Commerce  in  Denver,  the  appellant,  and 
against  the  A.   K.  Clarke  Mercantile  Com-  „    ^^ ,  . 

r  iii  tT\/r  i-1  l'**^*  Stated. 

pany,     hereafter    termed    the       Mercantile 
Company."     The  bill  was  filed  by  Paris,  Allen  &  Co., 

*See  notes  at  end  of  case. 


54  PLEDGES  OF  STOCK  [VOE  I 

National  Bank  of  Commerce  v.  Allen 

as  judgfment  creditors  of  the  Mercantile  Company,  for 
their  own  benefit,  and  for  the  benefit  of  such  other 
judo-ment  creditors  of  the  Mercantile  Company  as  migfht 
thereafter  join  in  the  proceeding-  and  contribute  to  the 
expense  thereof  ;  whereupon  several  other  judg-ment 
creditors  of  the  Mercantile  Company  did  unite  in  the 
proceeding's  and  become  parties  complainant. 

The  relief  soug-ht  is  based  upon  g-rounds  set  forth  in 
the  bill  of  complaint,  which  may  be  summarized  as  fol- 
lows :  The  Mercantile  Company  was  org-anized  on  or 
about  April  26,  1893,  under  the  laws  of  the  state  of 
Colorado,  for  the  ostensible  purpose  of  acquiring-  and 
succeeding-  to  the  business  of  A.  K.  Clarke,  who  for 
some  time  previously  had  been  eng-ag-ed  in  the  whole- 
sale and  retail  liquor  business  in  the  city  of  Denver, 
Colo.,  which  business  was  transacted  in  the  name  of 
A.  K.  Clarke  &  Co.  The  capital  of  the  Mercantile 
Company  was  fixed  at  $200,000,  consisting-  of  2,000 
shares,  of  the  par  value  of  $100  each,  and  the  stock  was 
all  issued  to  said  Clarke  and  two  other  persons  by  him 
desig-nated,  as  full-paid  stock,  in  exchang-e  for  the 
stock  of  liquors,  warehouse  receipts,  and  other  prop- 
erty formerly  belong-ing-  to  said  Clarke.  1,998  shares 
of  said  stock  were  issued  to  Clarke  personally,  and  1 
share  each  to  two  other  persons,  who  forthwith  became 
directors  and  officers  of  the  corporation.  Clarke  was 
at  the  time  indebted  to  the  National  Bank  of  Commerce 
in  Denver,  the  appellant,  in  the  sum  of  $50,000,  and  he 
forthwith  assigned  the  1,998  shares  of  stock  in  the 
Mercantile  Company  to  said  bank,  as  collateral  secur- 
ity for  his  individual  indebtedness.  Immediately  upon 
its  org-anization  the  Mercantile  Company  eng-ag-ed  in 
the  wholesale  liquor  business  at  the  place  formerly  oc- 
cupied by  Clarke,  and  continued  to  transact  such  bus- 
iness uutil  January  10,  1895,  and  in  the  meantime  be- 
came indebted  to  the  firm  of  Paris,  Allen  &  Co.,  for 
liquors  purchased,  in  the  sum  of  $3,250,  and  to  the 
other  complainants  as  well,  the  total  indebtedness  ag-- 
g-regating-  about  520,000.  The  aforesn.id  indebtedness 
was  contracted  with  the  full  knowledgfe  of  the  National 


B  CAS]  PLEDGES  OF  STOCK  55 

National  Bank  of  Commerce  i'.  Allen 

Bank  of  Commerce  iu  Denver,  hereafter  termed  the 
"Bank,"  which  was  acquainted  with  the  purchases 
that  were  from  time  to  time  made  by  the  Mercantile 
Company.  Upon  its  organization  the  Mercantile  Com- 
pany g-uarantiedaud  indorsed  the  individual  obligfations 
of  said  Clarke  to  the  bank  ;  doinof  so,  as  the  bill  alleg^ed, 
without  consideration,  and  for  the  purpose  of  creating- 
a  fictitious  indebtedness  from  the  Mercantile  Company 
to  the  bank.  On  or  about  January  10,  1895,  the  Mer- 
cantile Company  sold  and  transferred  its  property  and 
assets  to  another  corporation,  called  the  "Colorado 
Mercantile  Company"  for  the  sum  of  $50,000,  the 
whole  of  which  sum,  when  received,  was  paid  to  the 
defendant  bank.  The  complainants  below  further 
charg-ed,  on  information  and  belief,  that  the  Mercan- 
tile Company  was  organized  for  the  purpose  of  enabl- 
ing- Clarke  to  avoid  the  payment  of  his  individual  debts, 
amounting-  at  the  time  to  $50,000  ;  that  the  sale  by  the 
Mercantile  Company  to  the  Colorado  Mercantile  Com- 
pany, in  Januarys  1895,  was  made  for  the  sole  purpose 
of  enabling-  the  vendor  to  avoid  the  payment  of  its  just 
debts,  particularly  the  several  debts  due  to  the  com- 
plainants, and  for  the  purpose  of  hindering-  and  delay- 
ing- its  creditors  in  the  collection  of  their  debts,  and  to 
secure  the  payment  of  the  indebtedness  due  from  Clarke 
individually  to  the  bank  ;  and  that  by  the  sale  made  by 
Clarke  to  the  Clarke  Mercantile  Company,  and  by  the 
assignment  of  Clarke's  1,998  shares  of  stock  to  the  de- 
fendant bank,  as  collateral -security,  the  bank  became 
the  sole  owner  of  the  property  of  the  Mercantile  Com- 
pany, and  conducted  the  wholesale  liquor  business  in 
the  name  of  the  latter  company,  for  its  sole  use  arid 
benefit,  from  April,  1893,  until  the  sale  in  January, 
1895,  to  the  Colorado  Mercantile  Company.  The  com- 
plainants also  charged  that  during  the  last-mentioned 
period  the  bank,  acting  in  the  name  of  the  Clarke  Mer- 
cantile Company,  published  to  the  commercial  world 
that  the  stock  of  said  company  had  been  fully  paid  up 
by  the  sale  and  transfer  of  Clarke's  stock  of  goods  to 
said  company  ;  that  the  value  of  the  property  and  as- 


56  PLEDGES  OF  STOCK  [vOL  I 

National  Bank  of  Commerce  v.  Allen 

sets  of  said  company  exceeded  $115,000  ;  that  its  debts 
did  not  exceed  $10,000  ;  that  the  foregfoing-  statements 
were  made  for  the  purpose  of  deceiving-  persons  who 
had  dealings  with  the  Mercantile  Company,  and  to  in- 
duce such  persons  to  sell  goods  to  said  company  ;  that 
thereby  the  complainants  were  in  fact  induced  to  sell 
goods  to  the  Mercantile  Company,  shortly  prior  to  the 
sale  of  its  business  to  the  Colorado  Mercantile  Com- 
pany, which  goods  were  on  hand  at  the  time  of  said 
sale  ;  and  that  the  proceeds  thereof,  on  the  occasion  of 
such  sale,  were  paid  to  and  received  by  the  defendant 
bank,  and  were  still  held  by  it.  They  further  charged 
that  the  Mercantile  Company  was  at  no  time  indebted 
to  the  bank  in  a  sum  exceeding  $10,000.  It  was  finally 
charged  that  the  business  aforesaid  was  conducted  in 
the  manner  aforesaid, — that  is  to  say,  by  the  bank  in 
the  name  of  the  Clarke  Mercantile  Company, — "for 
the  purpose  of  covering  and  concealing  a  secret  trust 
in  favor  of  the  said  respondent  bank,  and  for  the  pur- 
pose of  hindering,  delaying,  and  defrauding  the  cred- 
itors of  said  respondent  company,  and  particularly  your 
orators,  in  the  collection  of  their  just  claims  and  de- 
mands against  the  said  respondent  company," 

The  bank,  by  its  answer,  denied,  in  substance,  that 
the  Mercantile  Company  had  ever  been  its  agent  for 
the  transaction  of  any  business,  or  that  it  had  ever 
transacted  any  business  in  the  name  of  that  company, 
or  that  it  had  ever  made  any  statements  to  the  com- 
mercial world  such  as  were  imputed  to  it  in  the  bill  of 
complaint,  to  the  effect  that  the  stock  of  the  Mercantile 
Company  was  fully  paid  up,  or  concerning  the  value 
of  its  property  and  assets.  It  also  denied  in  detail  all 
other  allegations  contained  in  the  bill  which  tended 
to  show  that  it  had  become  a  party  to  any  scheme  to 
wrong  or  defraud  the  complainants  or  either  of  them. 
The  case  comes  to  this  court  on  appeal  from  a  decree 
in  favor  of  the  complainants  below,  which  adjudged 
that  the  defendant  bank  should  pay  to  the  respective 
complainants  the  amount  of  their  several  demands 
against  the  Clarke  Mercantile  Company,  all  of  which 


B  CAS]  PLEDGES  OF  STOCK  57 

National  Bank  of  Commerce  z'.  Allen 

had  been  reduced  to  judg-ment,  toufether  with  interest 
thereon  at  the  rate  of  8  per  cent,  per  annum  from  and 
after  November  2,  1895. 

A.  B.  Seaman,  for  appellant. 

Lucius  M.  Cuthbert  (Henry  7.  Rogers  and  Daniel 
B.  Ellis,  on  the  brief^,  for  appellees. 

Before  Sanborn  and  Thayer,  Circuit  Judg-es,  and 
Shiras,  District  Judg-e. 

Thayer,  Circuit  Judge,  after  stating-  the  case  as 
above,  delivered  the  opinion  of  the  court. 

It  is  claimed  in  behalf  of  the  appellees,  who  were 
the  complainants  below,  that  the  Clarke  Mercantile 
Company  indorsed  the  individual  notes  of  A.  K.  Clarke, 
which  were  at  the  time  held  and  owned  by  the  appel- 
lant, the  National  Bank  of  Commerce  in  Denver,  with- 
out receiving-  any  consideration  therefor,  and  that  the 
indorsements  in  question  were  for  that  reason  ultra 
vires  and  void.  On  the  assumption  that  the  indorse- 
ments were  without  consideration,  it  seems  to  be 
further  contended  that,  when  the  Mercantile  Company 
discharg-ed  its  liability  to  the  bank  on  account  of  such 
indorsements  by  paying-  the  notes,  it  acted  wrong-fully 
and  in  fraud  of  the  rig-hts  of  the  appellees,  and  that 
the  money  so  paid  on  account  of  the  indorsements  can 
be  recovered  by  them  from  the  bank,  notwithstanding- 
the  admitted  fact  that  none  of  the  debts  now  due  to  the 
appellees  were  contracted  by  the  Mercantile  Company 
until  more  than  a  year  after  the  indorsements  were 
executed.  We  think  it  sufficient  to  say,  concerning- 
this  contention  of  the  appellees,  that  the  proof  does 
not  support  the  charge  that  the  indorsements  were 
executed  without  consideration.  The  trial  court  was 
of  the  same  opinion,  and  we  fulh^  concur  in  its  views 
on  that  point.  The  record  discloses  that,  at  the  first 
meeting-  of  the  directors  of  the  Mercantile  Compan}-. 
Clarke  proposed  to  sell  and  conve}^  to  said  company 
his  entire  stock  in  trade,  consisting-  of  liquors,  cig-ars, 
fixtures,  and  all  other  property,  provided  the  company 


58  PLEDGES  OF  STOCK  [vOL  I 

National  Bank  of  Commerce  v.  Allen 

would  issue  to  him  its  entire  capital  stock  as  full  paid 
and  nonassessable,  and  provided,  further,  that  the 
company  would  indorse  the  notes  of  said  Clarke  to  the 
National  Bank  of  Commerce  in  Denver,  in  the  sum  of 
S77,500,  in  consideration  of  the  transaction.  The  prop- 
osition which  was  made  by  Clarke  oblig-ated  him  to 
further  secure  his  notes  to  the  bank  by  hypothecatingf 
a  sufficient  amount  of  the  capital  stock  of  the  Mercan- 
tile Company,  when  the  same  was  issued  to  him,  but 
it  was  expressly  stated  in  his  proposition  to  the  com- 
pany that  the  indorsement  of  his  notes  to  the  bank 
should  form  a  part  of  the  consideration  for  the  proposed 
transfer  of  his  stock  in  trade  to  the  Mercantile  Com- 
pany. This  proposition  on  the  part  of  Clarke  was 
accepted  ;  his  stock  in  trade  was  convej^ed  to  the 
Mercantile  Company  ;  its  total  capital  stock  was  issued 
to  Clarke,  or  to  such  persons  as  were  by  him  desigfnated 
to  receive  it  ;  and  two  notes  of  Clarke,  one  for  S50,000 
and  one  for  $27,500,  which  were  then  held  by  the 
bank,  were  forthwith  indorsed  by  the  Mercantile  Com- 
pany. Moreover,  we  find  no  reason  to  doubt  that  the 
bank  at  that  time  held,  as  collateral  security,  mau}^ 
warehouse  receipts  for  g'oods  which  then  formed  a 
part  of  Clarke's  stock  in  trade,  and  we  think  it  is 
most  probable  that  the  bank  surrendered  such  collateral 
to  enable  Clarke  to  transfer  his  property  and  business 
to  the  Mercantile  Company.  In  view  of  these  facts, 
we  think  that  the  Mercantile  Company  did  receive  a 
valuable  consideration  for  the  indorsement  of  Clarke's 
individual  notes,  and  that  the  contention  to  the  con- 
trary is  without  merit.  It  may  be  that  the  creditors 
of  the  Mercantile  Company,  in  a  proper  proceedin<^, 
.would  be  able  to  show  that  b3'  the  transaction  in  ques- 
tion the  par  value  of  its  stock  was  not  fully  paid,  but 
there  is  no  gfreater  reason  for  saying-  that  the  notes 
were  indorsed  without  consideration  than  there  would 
be  for  asserting*  that  nothing-  was  paid  on  the  capital 
stock.  The  transfer  of  the  stock  in  trade  and  the 
indorsen-ent  of  the  notes  formed  a  part  of  the  same 
transaction,  and  the  former  act  was  the  consideration 


B  CAS]  PLEDGES  OF  STOCK  59 

National  Bank  of  Commerce  v.  Allen 

for  the  latter.  Nor  do  we  perceive  that  there  was  any 
want  of  power  on  the  part  of  the  Mercantile  Compau}' 
to  execute  the  indorsements.  It  was  orgfanized  "to 
carry  on  a  wholesale,  retail,  and  jobbing-  liquor,  cig^ar, 

and  tobacco  business,"   which  involved  the 
EndTrsm"."'  "*      right  to  purchase  the  requisite  stock  of  such 

articles,  and  it  could  purchase  the  same 
'either  by  paying  cash  therefor,  or  by  endorsing  the 
outstanding  paper  of  the  party  from  whom  it  acquired 
them,  if  that  method  of  payment  was  deemed  satisfac- 
tory. 

The  appellees  also  predicate  a  rig-ht  to  relief  on  the 
ground  that  the  appellant  bank  conducted  a  wholesale 
and  retail  liquor,  cigar,  and  tobacco  business  under 
the  name  of  the  Clarke  Mercantile  Company,  for  the 
bank's  exclusive  use  and  benefit,  and  that  while  doing- 
so  it  made  certain  false  and  fraudulent  representations 
to  the  business  world  concerning  the  amount  that  had 
been  paid  on  the  stock  of  the  Mercantile  Company,  and 
concerning  its  assets  and  liabilities,  whereby  the  appel- 
lees were  deceived  and  induced  to  extend  credit  to  that 
company.  This  charg'e  appears  to  be  based  on  the 
following  facts,  and  is  in  the  nature  of  a  legal  inference 
therefrom:  When  the  Mercantile  Company  was  formed, 
Clarke  became,  and  so  long-  as  it  was  engag-ed  in 
business  continued  to  be,  its  president  and  chief 
manag-ing  officer.  Such  purchases  and  sales  as 
were  thereafter  made  by  the  company  were  made 
under  his  supervision  and  direction.  He  was  ac- 
tively engaged  in  controlling  the  daily  business  trans- 
actions of  the  company  from  the  date  of  its  or- 
ganization until  January  12,  1895,  when  the  Mer- 
cantile Company  sold  its  property  and  the  g"ood  will 
of  its  business  to  the  Colorado  Mercantile  Company. 
On  the  organization  of  the  Mercantile  Company,  which 
appears  to  have  taken  place  on  May  26,  1893,  1,998 
shares  of  stock  were  issued  to  Clarke,  and  1  share  each 
to  Benjamin  Harrison  and  John  S.  Fowler,  who,  to- 
gether with  Clarke,  became  the  first  board  of  directors. 
Clarke    immediately    transferred    1,988    shares   of  his 


60  PLEDGES  OF  STOCK  [vOL  I 

National  Bank  of  Comiuerce  v.  Allen 

stock  to  William  B,  Morrison,  who  was  the  appellant's 
assistant  cashier,  as  collateral,  to  secure  his  individual 
indebtedness  to  the  appellant  bank,  and  that  amount  of 
stock  thereafter  stood  in  Morrison's  name,  with  a  nota- 
tion upon  the  stock  ledg-er  that  he  held  it  as  "trustee 
for  collateral  security."  On  September  21,  1893, 
William  F.  Dieter  was  elected  a  director  of  the  Mer- 
cantile Company  in  place  of  Benjamin  Harrison,  who 
had  resig-ned.  Dieter  thereafter  served  the  compan}- 
in  the  capacity  of  director  and  bookkeeper,  he  having- 
been  recommended  for  the  latter  situation  to  the  presi- 
dent of  the  Mercantile  Company  by  one  of  the  directors 
of  the  appellant  bank.  On  June  4,  1894,  Morrison", 
who  had  then  acquired  in  his  own  rigfht  the  one  share 
of  stock  orig-inally  issued  to  John  S.  Fowler,  became  a 
director  of  the  Mercantile  Company  in  lieu  of  said 
Fowler,  but  he  does  not  appear  to  have  taken  an  active 
part  in  the  daily  business  transactions  of  the  Mercantile 
Company,  which  were,  in  the  main,  conducted  by 
Clarke,  with  the  assistance  of  Dieter,  the  bookkeeper. 
On  April  18,  1895,  Morrison  resig-ned  from  the  board 
of  directors,  and  his  resig-nation  was  duly  accepted. 
There  is  testimony  in  the  record  which  tends  to  show 
that  on  or  about  June  10,  1893,  Clarke  stated,  in  sub- 
stance, to  a  representative  of  R.  G.  Dun  &  Co.,  when 
he  was  requested  to  make  a  statement  concerning  the 
assets  and  liabilities  of  the  Mercantile  Companv,  that 
its  total  assets  ag-g-reg-ated  $146,215.12;  that  the  mer- 
chandise indebtedness  which  had  been  assumed  by  the 
company  amounted  to  $22,559.54  ;  and  that  he  (Clarke) 
owed  individually  S76,500,  which  was  secured  by  the 
hypothecation  of  his  stock  in  the  Mercantile  Company. 
The  testimony  further  shows  that  Dieter,  the  book- 
keeper of  the  Mercantile  Company,  on  March  30,  1894, 
handed  to  an  agent  of  R.  G.  Dun  &  Co.  another  state- 
ment, showing  that  the  total  assets  of  the  Mercantile 
Company  at  that  time  amounted  to  5125,627.93,  and  its 
liabilities  to  $10,000 ;  but  there  is  also  evidence  to  the 
effect  that  the  agent  of  R.  G,  Dun  and  Co.,  to  whom 
the  last-mentioned  statement  was  furnished,  well  knew 


B  CAS]  PLEDGES  OF  STOCK  61 

National  Bank  of  Commerce  v.  Allen 

that  the  Mercantile  Company  was  heavily  indebted  at 
the  time  to  the  appellant  bank,  and  that  such  indebted- 
ness had  not  been  included  in  the  aforesaid  statement  of 
its  liabilities.  While  the  evidence  fully  warrants  the 
conclusion  that  the  appellees  were  induced  to  credit  the 
Mercantile  Company  on  the  strencrth  of  statements 
concerning-  its  means  and  solvency  that  were  circulated 
by  various  commercial  agfencies,  and  had  been  compiled 
from  statements  made  by  Clarke  and  Dieter,  yet  there 
is  no  evidence  that  such  statements  were  made  either  bv 
direction,  or  with  the  knowledg-e  and  sanction,  of  any 
of  the  managing-  officers  of  the  appellant  bank.  The 
testimony  further  discloses  that,  after  the  Mercantile 
Company  was  formed,  its  business  was  generall}''  con- 
ducted at  a  loss  ;  that  this  was  particularly  the  case  in 
the  season  of  1894  ;  that  Clarke  failed  to  induce  certain 
parties,  from  whom  he  had  been  in  the  habit  of  pur- 
chasing- g-oods,  to  buy  a  part  of  his  stock  in  the  Mer- 
cantile Company  and  become  interested  in  its  business, 
as  he  had  hoped  to  do  when  the  company  was  formed  ; 
that  having-  failed  in  the  latter  project,  and  the  company 
being  in  g-reat  financial  stress,  Clarke,  on  or  about 
January  1,  1885,  resolved  to  sell  the  stock  in  trade  of 
the  Mercantile  Company  and  the  g-ood  will  of  its  busi- 
ness, if  he  could  find  a  purchaser  for  the  same  at  a  fair 
price  ;  that  he  succeeded  in  finding-  a  purchaser,  and 
conferred  with  the  officers  of  the  appellant  bank,  which 
was  the  larg-est  creditor  of  the  Mercantile  Company, 
concerning-  the  proposed  sale,  and  was  aided  and  assisted 
by  them  to  a  large  extent  in  the  neg-otiations,  which 
culminated,  on  January  12,  1895,  in  a  sale  to  the  Colo- 
rado Mercantile  Company  of  the  property  and  assets 
of  the  Mercantile  Company  for  the  sum  of  S50,000  in 
cash  ;  and  that  the  money  so  received  by  the  Mercantile 
Company  on  the  sale  of  its  property  and  g-ood  will  was 
deposited  by  it  in  the  appellant  bank,  where  it  was 
applied,  with  the  consent  of  the  Mercantile  Company, 
to  the  payment  of  its  indebtedness  to  the  appellant 
bank,  which  then  amounted  to  about$78,000,  including- 
the  balance   unpaid   on  the   individual  indebtedness  of 


62  PLEDGES  OF  STOCK  [vOL  I 

National  Bank  of  Coinmerce  v.  Allen 

Clarke,  which  had  been  indorsed  by  the  Mercantile 
Conipan}' on  the  orgfanization- of  that  concern.  Prior 
to  January  12,  1895,  it  seems  that  $13,111  had  been  paid 
on  Clarke's  individual  note  of  527,500,  which  had  been 
indorsed  by  the  Mercantile  Company  ;  that  said  note 
had  been  canceled,  and  the  balance  due  thereon  had 
been  included  in  another  note  of  S25,000,  which  was 
drawn  by  the  Mercantile  Company  and  indorsed  by 
Clarke.  The  note  for  $50,000,  orig-inally  made  by 
Clarke  and  indorsed  b\"  the  Mercantile  Company,  ap- 
pears to  have  been  wholly  unpaid  on  January  12,  1895, 
except  such  sums  as  may  have  been  paid  thereon  in  the 
way  of  interest. 

Such,  in  brief,  are  the  material  facts  on  which  the 
claim  is  based  that  the  appellant  bank  transacted  busi- 
ness in  the  name  of  the  Mercantile  Company,  for  its 
exclusive  use  and  benefit,  and  that  the  representations 
aforesaid  concerning-  that  compan3^'s  assets  and  liabili- 
ties were  in  fact  made  bv  the  bank,  and  that  the  bank 
should  be  held  accountable  therefor. 

We  are  of  opinion,  however,  that  the  claim  in  ques- 
tion is  not  well  founded.  The  Mercantile  Company 
was  a  distinct  leg^al  entity,  subject  at  all  times  to  the 
control  of  its  own  officers,  and  it  is  clear,  we  think, 
that  it  did  not  become  an  agfent  of  the  bank  either  be- 
cause Clark  hypothecated  the  bulk  of  its  stock  which 
he  happened  to  own  to  secure  a  debt  due  to  the  bank, 
or  because  Morrison,  an  employee  of  the  bank,  served 
for  a  time  on  the  board  of  directors  of  the  Mercantile 
Company,  or  for  both  of  these  reasons  combined.  In  a 
legfal  sense,  a  corporation  does  not  become 
the  ag-ent  of  another,  be  it  a  corporation  or 
an  individual,  because  the  latter  holds  a  part  of  its 
stock  in  pledg-e  to  secure  a  debt  ;  nor  is  the  relation  of 
principal  and  ag-ent  established,  as  between  two  corpo- 
rations, because  an  officer  or  employee  of  one  is  a  mem- 
ber of  the  board  of  directors  of  the  other.  It  has  even 
been  held  that,  where  the  same  person  is  acting-  as 
director  in  two  corporations,  knowledg-e  acquired  by 
him,  while  serving-  in  the   capacity  of  a  director  in  one 


B  CAS]  PLEDGES  OF  STOCK  63 

National  Bank  of  Commerce  v.  Allen 

corporation,  is  not  imputable  to  the  other.  Thomp. 
Corp.  §  5214,  and  cases  there  cited.  Moreover,  while  it 
may  be  conceded  that  one  corporation  may  act 
as  ag"ent  of  another  in  a  g-iven  transaction,  or  even 
in  a  series  of  transactions,  yet  we  do  not  understand  it 
to  be  possible,  for  a  corporation  which  has  been  incor- 
porated to  carry  on  a  given  business,  to  transact  the 
w^hole  of  that  business  merely  as  the  ag-ent  of,  and  for 
the  exclusive  benefit  of  another.  Ordinarily,  a  corpo- 
ration is  not  even  the  ag-ent  of  its  own  stockholders, 
in  such  a  sense  as  to  render  them  personally  liable 
upon  its  contracts  or  for  its  wrongfful  or  fraudulent 
acts,  although  its  stockholders  are  entitled  ultimatel}^ 
to  the  net  profits  realized  from  all  corporate  ventures  ; 
and  it  would  be  a  strang-e  result  if  the  acquisition  of 
stock  in  a  corporation  by  one  of  its  creditors,  to  be  held 
as  collateral  security,  or  if  the  election  of  one  of  the 
creditor's  employees  to  serve  on  its  board  of  directors, 
should  be  held  to  place  the  corporation  in  the  attitude 
of  a  mere  ag*ent.  Such  a  conclusion  is 
totally  inadmissible.  It  is  doubtless  true,  ireditors.*  "^ 
as  has  been  sug-gfested,  that  a  larg-e  creditor 
of  a  corporation  or  of  an  individual,  by  virtue  of  being- 
such,  sometimes  has  such  an  influence  over  his  debtor 
as  enables  him  to  control  his  actions  in  many  ways  ; 
but  this  is  a  moral  power,  incident  to  the  situation, 
which  the  law  permits  a  creditor  to  exercise  for  his 
own  benefit  and  advantag^e,  even  at  the  expense  of 
other  creditors,  provided  that  he  does  not  direct  the 
doing-  of  acts  that  are  either  illeg-al  or  fraudulent.  The 
existence  of  such  an  influence,  however,  falls  far  short 
of  establishing-  the  relation  of  principal  and  ag-ent,  even 
where  it  is  plain  that  it  does  exist  and  has  been  exer- 
cised. In  the  case  at  bar,  it  is  obvious  that  the  bank 
counseled  and  advised  the  Mercantile  Company, throug-h 
Clarke,  its  president,  to  sell  its  property  and  effects, 
and  to  apply  the  proceeds  of  the  sale  on  the  company's 
indebtedness  to  the  bank  ;  and  it  is  very  probable  that 
the  Mercantile  Company  was  induced. to  a  larg-e  extent, 
by  such  advice  to  make  the  sale  and  such  appropriation 


64  PLEDGES  OF  STOCK  [vOL  I 

National  Bank  of  Commerce  v.  Allen 

of  the  proceeds.  But  concedino'  this  to  have  been  the 
case,  the  transaction  amounted  to  no  more  than  a  pref- 
erence among"  creditors,  all  of  whom  had  valid  claims, 
and,  considered  by  itself,  we  do  not  see  that  it  g-ives 
the  appellees  any  legfal  cause  for  complaint.  It  seems 
to  be  well  settled  in  the  state  where  the  transaction 
took  place,  and  in  other  jurisdictions  as  well,  that  a 
private  business  corporation,  so  long"  as  it  retains  the 
custody  and  control  of  its  propert}',  may  dispose  of  the 
same  so  as  to  pay  the  claims  of  one  or  more  of  its  credi- 
tors, to  the  total  exclusion  of  other  equally  meritorious 
claims,  althoug"h  it  is  at  the  time  insolvent.  In  this 
respect  a  private  business  corporation  has  the  same 
power  to  prefer  creditors  which  is  possessed  by  an  indi- 
vidual. Its  propert\^and  assets  not  being-  held  in  trust 
for  equal  distribution  among*  all  of  its  creditors,  it  may 
discriminate  between  them  like  a  natural  person,  pro- 
vided it  pays  honest  debts  and  makes  no  distribution 
of  its  propert}^  among*  shareholders  until  all  leg^al  obli- 
gfations  to  creditors  have  been  discharg^ed.  West  v. 
Produce  Co.,  6  Colo.  App.  467,  41  Pac.  829  ;  Burchi- 
nell  V.  Bennett  (Colo.  App.)  52  Pac.  51  ;  Crymble  v. 
Mulvaney,  21  Colo.  203,  40  Pac.  499  ;  Sutton  v.  Dana, 
15  Colo.  98,  25  Pac.  90  ;  Gottlieb  v.  Miller,  154  111. 
44,  39N.  E.  992;  Henderson  f.  Tru^t  Co.,  143  Ind. 
561,  40  N.  E.  516;  Jewelry  Co.  v.  Volfer,  106  Ala. 
205,  17  South.  525  ;  Hollins  v.  Iron  Co.,  150  U.  S.  371, 
382,  14  Sup.  Ct.  127  ;  Railway  v.  Ham,  114  U.  S.  587, 
5  Sup.  Ct.  1081  ;  Graham  v.  Railroad  Co.,  102  U.  S. 
148,  160  ;  Fog-g-  v.  Blair,  133  U.  S.  534,  541,  10  Sup. 
Ct.  338  :  Gould  v.  Railway  Co.,  52  Fed.  680. 

In  concluding-  the  discussion  on  this  branch  of  the 
case,  it  is  proper  to  observe  that  if  the  charg-e  was 
well  founded  that  the  appellant  bank  carried  on  busi- 
ness in  the  name  of  the  Mercantile  Company,  and 
while  doing-  so  made  false  representations,  which  were 
productive  of  damag-e  to  the  appellees,  then  it  would 
follow  that  a  court  of  law  could  afford  adequate  relief 
for  the  allegfed  wrong-,  and  there  w^ould  be  no  occasion 
for  seeking  relief  in  a  conrt  of  equity. 


B  CAS]  PLEDGES  OF  STOCK  65 

National  Bank  of  Commerce  v.  Allen 

It  is  further  urgfed  that  the  decree  of  the  lower 
court,  compelling-  the  bank  to  pay  the  appellee's  claims 
out  of  the  mone}^  which  it  received  from  the  Mercan- 
tile Company  on  the  sale  of  its  property  and  g-ood  will, 
can  be  sustained  upon  the  theory  that  the  bank  had  a 
secret  lien  on  the  property  of  the  Mercantile  Company, 
or  what  was  tantamount  thereto,  which  was  fraudulent 
as  to  its  other  creditors.  This  claim  is  based  altog-ether 
on  the  state  of  facts  heretofore  detailed.  It  is  said,  in 
substance,  that  the  bank  held  1,988  shares  of  the  stock 
of  the  Mercantile  Company  by  a  title  which  authorized 
it  to  vote  the  stock  at  all  corporate  meeting-s  ;  that 
Morrison  and  Dieter,  two  of  the  directors  of  the  Mer- 
cantile Company,  while  serving-  on  its  board,  were 
subject  at  all  times  to  the  orders  of  the  bank,  and  that 
by  these  means  the  bank  had  acquired  a  control  over 
the  Mercantile  Company  which  was  as  obnoxious  to 
the  law  as  an  unrecorded  mortg-ag-e  or  bill  of  sale  cov- 
ering- all  of  that  company's  property  and  assets. 

We  think,  however,  that  it  is  an  erroneous  view  that 
the  bank  had  the  right  to  vote  the    stock    which  stood 
in  the  name  of  Morrison  on  the  books  of  the  Mercan- 
tile Company.     The  testimony  shows  with- 
out contradiction  that  Clarke  was  the  real     FMielutolk. 
owner  of  that    stock,  and    that  it    had   been 
placed  in  Morrison's  name  merely  as  collateral  security 
for    Clarke's  indebtedness  to  the    bank,    without    any 
agreement  between  Clarke  and  the  bank  that  while  it 
was  so  held  it  should  be  voted  by  the  latter.     Under 
these    circumstances,  the    rig-ht  to    vote  the    stock  de- 
pends upon  a  local  statute  of  Colorado  (1  Mill's  Ann. 
St.  Colo.  §§  495,  496),  which  is  as  follows  : 

"Sec.  495.  No  person  holding-  stock  in  any  corpora- 
tion as  executor,  administrator,  conservator,  g-uardian, 
or  trustee,  and  no  person  holding-  such  stock  as  collat- 
eral security,  shall  be  personally  subject  to  any  liabil- 
ity as  stockholder  of  such  corporation,  but  the  person 
pledg-ing-  such  stock  shall  be  considered  as  holding-  the 
same  and  shall  be  liable  as  a  stockholder  according-ly, 
and  the  estate  and  funds  in  the  hands  of  such  executor, 

B  CAS — 5 


66  PLEDGES  OF  STOCK  [vOL  I 

National  Bank  of  Commerce  v.  Allen 

administrator,  conservator,  g-uardian  or  trustee,  shall  be 
liable  in  like  manner  and  to  the  same  extent  as  the 
testator  or  intestate,  or  the  ward,  or  person  interested 
in  such  trust  funds  would  have  been  if  he  had  been 
living-  and  had  been  competent  to  act  and  held  the 
stock  in  his  own  name. 

*'Sec.  496.  E^very  executor,  administrator,  conserva- 
tor, g-uardian  or  trustee  shall  represent  the  stock  in 
his  hands  at  all  meetings  of  any  such  corporations  and 
may  vote  accordingly  as  a  stockholder,  and  every  per- 
son who  shall  pledgee  his  stock  may  nevertheless  rep- 
resent the  same  at  all  meeting-s  and  vote  according-ly." 

Reading  both  of  these  sections  together,  the  term 
"trustee, '"as  used  in  section  4%,  means,  we  think,  a 
person  who  holds  the  legal  title  to  stock  for  the  bene- 
fit of  some  third  party,  who  is  the  equitable  owner 
thereof,  and  entitled  to  the  dividends  thereon,  and 
whose  property,  whether  held  in  trust  or  otherwise, 
is  chargfeable  with  whatever  liability  may  result 
from  the  ownership  of  the  stock.  Persons  holding- 
stock  in  trust  for  married  women,  minors,  insane  per- 
sons, spendthrifts,  and  the  like  would  be  included  by 
the  term  "trustee,"  as  used  in  section  496,  supra;  but 
a  person  in  whose  hands  stock  is  placed  by  the  real 
owner,  to  be  held  merely  as  collateral  security  for  a 
debt  due  from  himself  to  a  third  person,  would  not  be 
so  included.  In  cases  of  the  latter  sort,  the  stock 
involved  is  really  held  in  pledg-e,  and  the  rig-ht  to  vote 
the  same,  in  the  absence  of  an  express  agreement  to 
the  contrary,  remains  with  the  pledgor.  Brewster  v. 
Hartley,  37  Cal.  15-25.  Such  we  understand  to  be  the 
construction  which  has  been  placed  upon  the  Colorado 
statute  by  the  supreme  court  of  that  state,  and  similar 
views  have  been  expressed  elsewhere.  Miller  v.  Mur- 
ray, 17  Colo.  417,  30  Pac.  46  ;  Vowell  v.  Thompson,  3 
Cranch,  C.  C.  438,  Fed.  Cas.  No.  17,023  ;  Hoppin  v. 
Buffum,  9  R.  I.  513-518;  Allen  v.  Hill,  16  Cal.  113  ; 
Com.  V.  Dalzell,  152  Pa.  St.  217,  25  Atl.  535. 

Concerning  the  charge  that  Morrison  and  Dieter, 
-ivhile  serving"  on  the  board  of  directors  of  the  Mercan- 


B  CAS]  PLEDGES  OF  STOCK  67 

National  Bank  of  Commerce  v.  Allen 

tile  Company,  were  mere  agents  of  the  bank,  we  deem 
it  sufficient  to  say:  First,  that  both  of  these  persons 
^vere  duly  qualified  to  serve  as  members  of  the  board 
by  their  ownership,  in  their  own  rig-ht,  of  one  share 
each  of  the  stock  of  the  Mercantile  Conipan}^  ;  and,  in 
the  second  place,  that  we  fail  to  find  any  evidence  in 
the  record  which  would  justify  a  finding-  that  Dieter 
was  a  special  representative  of  the  bank  on  the  board 
of  directors,  and  that  he  was  unduly  or  unlawfully 
swayed  by  its  influence.  He  was  the  bookkeeper  of  the 
Mercantile  Company,  and  was  employed  for  that  pur- 
pose by  its  president.  He  devoted  all  of  his  time  to  its 
service,  and  was  paid  for  his  services  by  the  company. 
In  short,  he  bore  no  such  relation  to  the  bank  as  would 
indicate  that  it  could  or  did  control  his  actions  in  an 
unlawful  manner.  Indeed,  when  the  facts  of  the  case 
are  fulh^  analyzed,  it  will  be  found,  we  think,  that  the 
control  which  the  bank  exercised  over  the  Mercantile 
Company  was  mainly  due  to  the  fact  that  it  had  made 
advances  to  the  company  and  was  its  larg^est  creditor. 
It  was  a  moral  influence,  due  to  this  circumstance, 
which  the  bank  seems  to  have  exerted  over  the  Mercan- 
tile Company,  rather  than  any  lecfal  power  that  it  had 
acquired  to  control  its  actions  or  business  policy.  The 
directors  of  the  Mercantile  Company  seem  to  have 
retained  the  power  at  all  times  to  transact  the  corporate 
business  as  they  deemed  best,  and  two  of  them,  at 
least  (Clarke  2.nd  Dieter),  did  not  occupy  such  a  relation 
to  the  bank  as  disabled  them  from  exercisino-  an  inde- 
pendent judg-ment,  or  acting-  at  all  times  as  they 
thought  proper. 

We  have  already  stated,  in   substance,  that  the  evi- 
dence does   not  support  the  contention  that   the  bank 
should  be  held  responsible  to  the  appellees 
for    the    statements    which    were    made    by  Banks-corporKte 
Clarke  and  Dieter,  relative  to  the   financial  tke. 
condition  of   the   Mercantile  Compan3%  and 
on  this  branch  of  the  case  it  is  proper  to  observe,  fur- 
ther, that  the  testimony  does   not  warrant   the  conclu- 
sion that  the  bank  wrong-fully  concealed  its  relation  as 


68  PLEDGES  OF  STOCK  [VOE  I 

National  Bank  of  Commerce  v.  Allen 

a  creditor  of  the  Mercantile  Company,  or  resorted  to 
any  artifice  to  prevent  such  relation  from  becoming* 
known.  No  statute  of  the  state  of  Colorado,  and  no 
business  usag*e  of  which  we  are  aware,  made  it  oblig-a- 
tory  on  the  bank  to  o-Ive  public  notice  of  the  amount  of 
its  claim  ag-ainst  the  Mercantile  Company  ;  and  it  g-oes 
without  saying"  that,  in  the  absence  of  such  a  statute, 
its  full  duty  was  discharg-ed  by  refraining-  from  mak- 
ing" any  false  statements  or  spreading"  any  false  reports 
concerning"  the  amount  of  such  indebtedness.  In  point 
of  fact,  the  existence  of  the  debt,  and  the  proximate 
amount  thereof,  was  known  to  some  of  the  appellees 
as  early  as  March  22,  1894  ;  since  the  evidence  shows 
that  on  that  day  some  of  the  appellees  were  furnished 
with  a  statement  by  Bradstreet's  Commercial  Agfency, 
which  contained  the  information  that  the  Mercantile 
Company  owed  a  local  bank  in  Denver  about  S60,000, 
and  that  the  stock  of  the  Mercantile  Company  was 
hypothecated  to  secure  such  indebtedness,  and  was 
virtually  owned  by  the  pledg"ee. 

In  view  of  these  considerations,  we  are  unable  to  dis- 
cover any  reasons  w^hich  will  warrant  a  ruling"  that  the 
control  which  the  bank  exercised  over  the  Mercantile 
Company  was  tantamount  to  a  secret  lien  on  its  prop- 
erty and  for  that  reason  fraudulent.  Such  influence  as 
it  exercised  over  the  Mercantile  Company  it  had  ac- 
quired b}^  means  which  the  law  esteems  lawful.  It 
concealed  no  fact  which  the  law  required  it  to  make 
known.  Moreover,  it  had  no  leg"al  power  to  control 
the  corporation,  since  the  majority  of  that  company's 
directors  were  under  no  obligfations  to  the  bank  which 
can  be  assumed  to  have  rendered  them  unduly  subservi- 
ent to  its  wishes. 

In  support  of  the  proposition  which  is  now  under 
consideration,  the  appellees  have  invited  our  special 
attention  to  the  case  of  American  Oak-Leather  Co.  v. 
C.  H.  Farg"o  &  Co.,  77  Fed.  671,  which  seems  to  have 
controlled  the  action  of  the  trial  court  in  rendering"  a 
decree  in  favor  of  the  appellees.  In  that  case  it 
appeared  that  an  insolvent  business  corporation  had 
executed  judgement  notes  in  favor  of  three  of  its  credi- 


B  CAS]  PLEDGES  OF  STOCK  69 

National  Bank  of  Commerce  v.  Allen 

tors,  and  had  ao-reed  that  it  would  not  execute  like 
notes  in  favor  of  any  of  its  other  creditors.  To  make 
the  latter  ag^reement  effectual,  and  for  no  other  pur- 
pose, its  president  and  secretary  and  the  majority  of 
its  directors  resigned,  and  their  places  were  filled  by 
clerks  of  the  attorne3^s  for  the  favored  creditors  \vho 
had  concocted  the  scheme.  The  corporation  was  thus 
left  bound  in  the  hands  of  the  favored  creditors  who 
had  been  vested  with  power  to  make  the  potential  liens 
actual  liens  at  any  moment.  It  was  held,  in  substance, 
that  judg-raent  notes  executed  under  such  circumstances 
had  all  the  vices  of  a  secret  lien.  The  facts  disclosed 
by  the  present  record,  as  heretofore  detailed,  are,  in 
our  judg^ment,  materially  different  from  those  last 
recited.  The  bank  held  no  oblig-ation  of  the  Mercan- 
tile Company  which  it  could  transform  at  will  into  an 
actual  lien  upon  its  property  ;  neither  did  it  have  a  like 
power  to  control  the  action  of  the  debtor  company. 
The  result  is  that,  if  we  g"ive  to  the  case  cited  its  full 
weigfht,  w^e  fail  to  discover,  in  the  facts  upon  w^hich  it 
was  predicated,  anything-  which  will  serve  to  alter  the 
conclusions  heretofore  announced. 

One  further  question  affecting- the  jurisdiction  of  the 
trial  court  is  presented  by  the  record  which  deserves 
notice.  Several  of  the  appellees  who  intervened  in  the 
suit  which  was  commenced  by  Paris,  Allen  &  Co., 
and  who  became  co-complainants  after  that  suit  was 
instituted,  did  not  have  claims  ag-ainst  the  Mer- 
cantile Cojjipany  amounting-  to  as  much  as  $2,000, 
exclusive  of  interest  and  costs,  and  with  respect  to 
those  claims  it  is  contended  by  the  appellant  that  the 
circuit  court  did  not  have  jurisdiction,  althoug-h  said 
claims  had  been  severally  reduced  to  judg-ment.  The  jur- 
isdiction of  the  trial  court  over  the  action  broug-ht  by 
Paris,  Allen  &  Co.  is  conceded,  since  that  firm  had 
obtained  a  judgment  against  the  Mercantile  Compan}' 
in  the  sum  of  $3,249.42.  The  question,  therefore,  is 
not  whether  several  judg-ment  creditors 
whose  claims  are  each  less  than  S2,000  can  ^Sveimon. 
ag-greg-ate  them  and  bring-  a  joint  suit  for 
the  purpose  of  maintaining-  a  creditor's  bill  in  the  federal 


70  PLEDGES  OF  STOCK  [VOL  I 

National  Bank  of  Commerce  v.  Allen 

court,  but  the  precise  question  at  issue  is  whether  cer- 
tain judg-ment  creditors  whose  judg-ments  were  each 
less  than  $2,000  had  the  right  to  intervene  after  anoth- 
er creditor's  bill  had  been  filed  in  the  federal  court  over 
which  that  court  had  undoubted  jurisdiction.  This 
question,  we  think,  should  be  answered  in  the  affirma- 
tive. The  original  bill  was  exhibited  for  the  purpose 
of  reaching  a  specific  fund  alleged  to  be  in  the  hands  of 
the  appellant  bank,  and  subjecting  the  same  to  the 
payment  of  judgments  against  the  Mercantile  Company 
on  the  theory  that  the  bank  had  acquired  the  fund  in 
fraud  of  the  rights  of  creditors  ;  and  while  it  is  true 
that  the  court  ultimately  rendered  a  money  decree 
against  the  bank  requiring  it  to  pay  specific  sums  of 
money  to  each  of  the  several  complainants,  yet,  in  the 
progress  of  the  case,  it  might  have  found  it  necessar}' 
to  have  appointed  a  receiver  of  the  fund,  or  to  have  re- 
quired its  payment  into  court  for  the  purpose  of  distri- 
bution. Had  the  property  proceeded  against  been 
land  or  goods  and  chattels,  it  would  probably  have 
found  it  necessary  to  have  appointed  a  receiver.  The 
suit  was  clearly  one  to  reach  a  specific  fund,  and  sub- 
ject it  to  the  payment  of  debts  of  the  Mercantile  Com- 
pany, and  being  a  suit  of  that  nature,  the  court  in 
which  such  bill  was  first  filed  acquired  the  right  toad- 
minister  the  fund  without  let  or  hindrance  on  the  part 
of  any  other  court,according  to  the  principles  announced 
by  this  court  in  the  cases  of  Merritt  v.  Barge  Co.,  49 
U.  S.  App.  85,  93,  24  C.  C.  A.  530.  and  79  Fed.  228, 
and  Gates  v.  Bucki,  12  U.  S.  App.  69,  4  C.  C.  A.  116, 
and  53  Fed.  961.  We  think,  therefore,  that,  after  the 
original  bill  had  been  filed,  and  the  fund  proceeded 
against  had  thereby  been  brought  within  the^jurisdict- 
ion  of  the  court  in  such  a  sense  that  if  it  thought 
proper  it  could  have  taken  the  fund  into  its  own  cus- 
tody, other  judgment  creditors  had  the  right  to  inter- 
vene for  the  protection  of  their  interests,  even  though 
their  judgments  were  severalh^  less  than  S2,000.  If 
they   had  been   compelled  to  file  bills   in  the  courts  of 


B  CAS]  PLEDGES  OF  STOCK  71 

National  Bank  of  Commerce  v.  Allen 

the  state  to  reach  the  same  fund  and  subject  It  to  the 
payment  of  their  judg-ments,  such  a  course  of  proced- 
ure miofht  eventually  have  led  to  a  conflict  of  jurisdict- 
ion. Besides,  we  do  not  understand  that  the  provision 
of  the  judiciary  act  limiting-  the  rig-ht  to  sue  to  cases 
which  exceed  $2,000,  exclusive  of  interest  and  costs, 
has  any  application  to  cases  like  the  one  at  bar,  where 
a  judgment  creditor  intervenes  and  becomes  a  party  to 
a  creditor's  bill  already  filed,  which  was  exhibited  by 
a  judgment  creditor  whose  judgment  exceeded  the  jur- 
isdictional amount,  and  which  was  filed  for  his  own 
benefit  and  for  the  benefit  of  others  similarly  situated 
who  might  come  in  and  contribute  to  the  expense  of 
prosecuting"  the  suit.  The  rig-ht  of  a  judgment  credi- 
tor to  file  a  bill  in  behalf  of  himself  and  other  judgment 
creditors  who  ma}'  elect  to  join  in  the  proceeding-  and 
contribute  to  the  expense,  has  been  recog-nized  from 
time  immemorial  by  courts  of  equity,  chiefly  because 
such  practice  lessens  litigation  and  is  also  convenient. 
It  is  hardly  probable,  therefore,  that  the  provision  of 
the  judiciary  act  last  referred  to  was  intended  to 
change  the  established  practice  so  as  to  prevent  a  judg-- 
ment  creditor  from  intervening-  in  a  proceeding-  already 
brought  to  collect  a  judg-ment  in  excess  of  $2,000,  ex- 
cluding- interest  and  costs,  if  his  own  claim  happened 
to  be  less  than  that  sum.  The  cases,  chiefly  relied 
upon  bv  the  appellant's  counsel  to  sustain  a  contrary 
"view  (Gibson  v.  Shufeldt,  122  U.  S.  27,  7  Sup.  Ct.  1066, 
Seaver  v.  Big-elows,  5  Wall.  208;  Ex  parte  Baltimore 
&  O.  R.  Co.,  106  U.  S.  5,  1  Sup.  Ct.  35;  Clay  v.  Field, 
138  U.  S.  464,  479,  11  Sup.  Ct.  419)  are  cases  where 
the  rigfht  of  appeal  to  the  supreme  court  was  denied  in 
consequence  of  the  amount  involved  in  the  appeal,  and, 
in  our  judgment,  they  are  not  in  point  on  the  question 
at  issue.  The  objection  to  the  jurisdiction  of  the  trial 
court  is  according-ly  overruled,  but,  as  the  decree  ap- 
pealed from  was  erroneous,  the  same  will  be  reversed, 
and  the  cause  will  be  remanded  for  further  proceeding-s 
in  accordance  with  this  opinion. 


72  DEPOSITS — TRUST  FUNDS  [vOL  1 

Meyers  v.  New  York  Couuty  Nat.  Bank 

NOTES. 

Right  to  Vote  Pledged  Stock. — When  the  stock  stands  in  the 
pledgee's  name  on  the  books  of  the  corporation,  the  pledgee,  in  the 
absence  of  restrictive  statutes,  has  the  right  to  vote  thereon.  Brew- 
ster V.  Hartley,  37  Cal.  IS;  hi  re  Barker,  6  Wend.  (N.  Y.)  509;  Ex 
parte  Willcocks,  7  Cow.  (N.  Y.)  402;  /;/  re  Mohawk,  etc.,  R.  Co.,  19 
Wend.  (N.  Y.)  135;  Vail  v.  Hamilton,  85  N.  Y.  453;  In  re  Empire 
City  Bank,  18  N.  Y.  199;  Roosevelt  v.  Brown,  11  N.  Y.  148;  In  r^'Long 
Island  R.  Co.,  19  Wend.  (N.  Y.)  37;  Adderly  v.  Storm,  6  Hill  (N.  Y.) 
624;  Heath  v.  Silverthorn,  etc.,  Co.,  39  Wis.  147;  Pittsburgh  R.  Co. 
V.  Stewart,  41  Pa.  St.  54;  Chase  z;.  Merrimack  Bank,  19  Pick.  (Mass.) 
564  ;  Fisher  v.  Seligman,  75  Mo.  13  ;  Griswold  v.  Seligman,  72  Mo. 
110;  Hoppin  v.  Buffum,  9  R.  I.  513;  Franklin  Bank  v.  Commercial 
Bank,  36  Ohio  St.  350. 

Same- -Statutory  Provisions. — In  several  States  it  is  provided  by 
statute  that  the  pledgor  may  attend  meetings  and  vote  as  stock- 
holder, even  though  the  stock  stands  in  the  name  of  the  pledgee 
The  proof  of  the  fact  that  the  stock  is  pledged  is  also  provided  for 
New  Hampshire,  G.  L.  1878,  p.  355,  §  12;  Maine,  Acts  1873,  ch.  69 
Washini^ton,  Code  1881,  i^  2432;  Nevada,  C.  E.  1872,  ch.  2,  ^  3400 
Indiana,  Rev.  Stat.  1881,  i<  3009;  Missouri,  Rev.  Stat.  1879,  ij  714 
Maryland,  R.  Code  1878,  p.  316,  JJ  13;  Wyoming,  C.  S.  1876,  ch.  34,  s^ 
17;  Neiv  Mexico,  G.  L.  1880,  p.  206,  ii  12;  Neiv  Mexico,  R.  L.  1875, 
p.  622,  i<  12. 

Same — When  Standing  in  Pledgor's  Name. — If,  however,  the  cer- 
tificate is  only  transferred  in  blank  and  the  stock  still  stands  in 
the  pledgor's  name  on  the  books,  the  pledgor  has  the  right  to  vote. 
Becker  v.  Wells  F.  M.  Co.,  1  Fed.  Rep.  276;  In  re  Barker,  6  Wend. 
(N.  Y.)  409;  Ex  parte  Willcocks,  7  Com.  (N.  Y.)  402;  In  re  Cecil,  36 
How.  Pr.  (N.  Y.)  477;  Strong  z'.  Smith,  15  Hun  (N.  Y.)  222;  Mer- 
chants' Bank  v.  Cook,  4  Pick.  (Mass.)  405;  McDaniels  v.  Flower 
Brick  Mfg.  Co.,  22.  Vt.  274. 


Meyers 


New  York  County  Nat.  Bank, 

(Supreme  Court  of  Neu<  Yor/c,  Appellate  Division,  Jan.  24,  iSgg.) 

Trust  Funds  Deposited  in  Personal  Account.* — Where  the  trustee 
of  an  incompetent  person  deposits  the  trust  funds  in  his  personal 
bank  account,  and  there  is  nothing  to  show  that  they  are  not  the 
trustee's  individual  property,  and  the  bank  appropriates  them,  as 
a  part  of  such  account,  to  satisfy  notes  given  to  it  by  the  trustee,  the 
succeeding  trustee  cannot  recover  such  funds  in  behalf  of  his  ward's 
estate. 


*See  note  at  end  of  case. 


B  CAS]  DEPOSITS — TRUST  FUNDS  73 

Meyers  v.  New  York  County  Nat.  Bank 

Appeal    by    plaintiff    from    trial    term.     Affirmed. 

Arg;ued  before  Goodrich,  P.  J.,  and  Cullen, 
Bartlett,  Hatch  and  Woodward,  JJ. 

Richard  M.  Henry  (John  W.  Weed,  on  the  brief), 
for  appellant. 

JoJin  M.  Boicers  ( L.  G.  Reed,  on  the  brief),  for 
respondent. 

Cullen,  J.  John  McLellan  kept  a  deposit  account 
with  the  defendant.  He  was  appointed  committee  of 
the  estate  of  Edward  Crawford,  an  incompetent  person. 
"While  such  committee,  he  received  moneys  belono-ing- 
to  the  estate  of  his  ward,  and  deposited  them  in  his 
personal  bank  account.  During'  this  period  the  defend- 
ant made  two  loans  to  McLellan  of  $2,500  each,  pay- 
able on  demand.  On  April  19,  1892,  there  was  to  the 
credit  of  McLellan's  account  in  the  bank  the  sum  of 
$393.81,  of  which  $381.73  were  the  funds  of  the  estate 
of  his  ward.  On  this  day  the  defendant  called  the  two 
loans  of  McLellan,  and,  on  his  failure  to  make  payment, 
appropriated  his  whole  deposit  account  towards  the 
satisfaction  of  the  notes.  There  was  nothing-  in  the 
character  of  the  funds  of  the  estate  which  were  depos- 
ited in  McLellan's  account  to  g-ive  the  bank  any  notice 
that  they  were  other  than  McLellan's  personal  moneys, 
and  at  the  time  of  closing  the  bank  account  and  of  the 
appropriation  of  the  balance  the  defendant  had  no 
knowledge  of  the  rig-hts  or  equities  of  the  estate  of  the 
incompetent.  Subsequently,  this  present  plaintiff  was 
substituted  as  the  committee  of  the  incompetent,  and  he 
brought  this  action  to  recover  that  portion  of  McLellan's 
account  which  represented  the  funds  of  the  estate. 

The  learned  counsel  for  the  appellant  concedes  the 
doctrine  that  money  has  no  earmarks,  and  that,  if  Mc- 
Lellan had  paid  to  the  bank,  on  account  of  his  debt  to 
it,  the  deposit  balance  remaining-  to  his  credit,  that  bal- 
ance, though  it  consisted  of  the  moneys  of  the  estate, 
misappropriated  by  McLellan,  could  not  be  recovered 
from  the  bank.     Justh  v.  Bank,  56  N.  Y.  478;  Stephens 


74  DEPOSITS — TRUST  FUNDS  [vOL  I 

Meyers  v.  New  York  County  Nat.  Bank 

V.  Board,  79  N.  Y.  183;  Hatch  v.  Bank,  147  N.  Y.  184, 
41  N.  E.  403.  He  contends,  however,  that  this  rule 
does  not  control  the  disposition  of  the  present  case, 
because  McLellan  did  not  pa}^  over  the  moneys  to  the 
defendant,  but  the  defendant  appropriated  them  with- 
out any  affirmative  action  on  McLellan 's  part.  I  think 
the  difference  of  fact  on  which  the  learned  counsel  for 
the  appellant  relies  creates  no  difference  in  the  prin- 
ciple applicable  to  the  case.  It  is  unnecessary  to  con- 
sider whether  moneys  of  a  third  party,  misappropriated 
by  a  depositor,  and  placed  in  his  personal  account, 
could  be  seized,  on  an  attachment  or  otherwise,  by  an 
ordinary  creditor  of  the  depositor.  The  question  here 
presented  is  different.  True,  McLellan  ^ave  the  de- 
fendant at  the  time  no  authority  to  appropriate  the  de- 
posit account  to  the  payment  of  the  notes,  but  he  had 
previously  g-iven  such  authority.  The  existence  of 
what  is  called  a  banker's  lien  is  well  recogfuized  in  com- 
mercial circles  and  by  the  law.  "The  rule  may  be 
broadly  stated  that  the  bank  has  a  g-eueral  lien  on  all 
moneys  and  funds  of  a  depositor  in  its  possession  for 
the  balance  of  the  g-eneral  account"  (Morse,  Banks,  § 
324).  thougfh  the  lien  is  only  for  accounts  that  are  at 
the  time  due  and  payable  (Jordan  v.  Bank,  74  N.  Y. 
467).  "Ordinarily  that  [the  lien]  attaches  in  favor  of 
the  bank  upon  the  securities  and  moneys  of  the  custo- 
mer deposited  in  the  usual  course  of  business  for  ad- 
vances which  are  supposed  to  be  made  upon  their  credit. 
It  attaches  to  such  securities  and  funds,  not  only 
ag-ainst  the  depositor,  but  ag^ainstthe  unknown  equities 
of  all  others  in  interest,  unless  modified  or  waived  by 
some  agreement,  express  or  implied,  or  by  conduct  in- 
consistent with  its  assertion."  National  Bank  t'.  Insur- 
ance Co.,  104  U.  S.  54.  Such  being-  the  law  and  com- 
mercial usagfe,  when  a  depositor  opens  an  account  in  a 
bank  that  very  act,  in  the  absence  of  an  agreement  to 
the  coutrar}",  authorizes  the  appropriation  of  his  de- 
posit balance  to  an}^  matured  claims  the  bank  may  hold 
ag-ainst  him,  the  same  as  if  he  then  executed  an  ag^ree- 
ment  in  writing-  to  that  effect.     This  being-  so,  we  do 


B  CAS]  DEPOSITS — TRUST  FUNDS  75 

Note 

not  see  how  the  present  case  can  be  disting"uished  in 
principle  from  that  of  Hatch  v.  Bank,  sii^ra.  In  the 
Hatch  Case  the  bank  held  the  deposit  under  a  contract 
which  authorized  it  to  appropriate  the  deposit  to  the 
payment  of  all  oblig-ations  and  liabilities  held  by  it, 
whether  the  liabilities  were  due  or  otherwise.  It  was 
held  that  when  the  bank  appropriated  the  depositor's 
balance  to  its  claims  "it  acted  with  the  w^ritten  consent 
and  authority  of  the  firm,  as  completely  effectual  and 
operative  as  if  the  debtors  on  that  day  had  personalh^ 
directed  the  application  to  be  made."  While  the  ag-ree- 
ment  in  the  Hatch  Case  g-ave  the  defendant  g-reater 
rig"hts  than  an  ordinary  banker's  lien,  that  fact  has  no 
bearing-  on  the  doctrine,  just  quoted,  that  a  previous 
authority  to  the  bank  to  appropriate  funds  to  the  pay- 
ment of  a  debt  is  the  same  in  effect  as  an  express  direc- 
tion g-iven  at  the  time  of  the  appropriation.  We  do  not 
mean  to  say  that  if  the  defendant,  before  action  taken 
by  it,  had  known  of  the  equities  of  the  estate  now  rep- 
resented by  the  plaintiff,  it  could  have  appropriated 
the  moneys  in  McLellan's  account  to  the  satisfaction 
of  his  personal  debt.  But  we  do  hold  that  the  appro- 
priation b}"  the  bank  of  such  balance,  without  knowledg^e 
of  the  equities  of  third  parties,  stands  on  the  same  foot- 
ing- as  a  payment  to  it  of  that  balance  by  the  check  of 
the  depositor,  and  cannot  be  recovered. 

The  judg-ment   appealed    from    should    be  aiErmed, 
with  costs.     All  concur. 


NOTE. 

Appropriation  of  Trust  Funds  by  Bank  to  Depositor's  Debt. — The 

proposition  that  there  is  no  right  of  offset  against  a  trust  deposit, 
nor  any  lien  for  the  trustee's  personal  debts,  is  axiomatic.  Locke 
V.  Prescott,  32  Beav.  261  ;  Murray  v.  Pinkett,  12  CI.  &  F.  764;  Nat- 
ional Bank  v.  Connecticut  Mut.  L.  Ins.  Co.,  104  U.  S.  54;  Union 
Stockyards  Bank  v.  Gillespie,  137  U.  S.  411;  Bundy  v.  Monticello,  84 
Ind.  119  ;  Johnson  v.  Payne,  etc.,  Bank,  56  Mo.  App.  257;  Clark  r. 
Harrisonville  First  Nat.  Bank,  57  Mo.  App.  277;  St.  Paul  Third 
Nat.  Bank  v.  Stillwater  Gas  Co.,  36  Minn.  75. 

In  Burtnett  v.  Corunna  First  Nat.  Bank,  38  Mich.  630,  it  was  held 
that  where  a  trustee  or  agent  deposits  his  principal's  money  in  his 


76  INSOLVENCY — ATTACHMENT  [vOL  I 

Andrews  z'.  Steele  City  Bank 

own  name  in  a  bank  to  which  he  is  indebted,  and  the  bank  has  ap- 
plied it  to  the  debt  without  authority,  and  in  ig-norance  of  the  real 
ownership  of  the  fund,  the  principal,  or  actual,  owner  may  reclaim 
the  fund  if  it  can  be  traced  and  identified. 

But  in  Wood  v.  Boylston  Nat.  Bank,  129  Mass.  358,  37  Am.  Rep.  366, 
an  attorney  indebted  to  a  bank  deposited  a  negotiable  promissory 
note  that  had  been  intrusted  to  him  for  collection,  and  g-ave  the 
bank  no  information  as  to  whose  account  it  was  to  be  collected  for. 
The  bank  collected  the  note,  and  credited  the  attorney's  account 
with  the  proceeds,  applying-  a  portion  thereof  to  the  paj-ment  of  the 
attorney's  indebtedness.  In  an  action  broug-ht  bj'  the  owner  of  the 
note,  as  soon  as  he  learned  of  the  bank's  conduct,  it  was  held  that 
no  recover^'  could  be  had. 

And  it  was  held  in  a  recent  English  case  that  a  bank,  with  which 
a  check  known  to  it  to  be  the  proceeds  of  shares  is  deposited  by  a 
broker  to  the  credit  of  his  individual  account,  is  entitled  to  retain 
the  money  in  discharge  of  an  overdraft  due  it  from  the  broker,  al- 
though the  check  represented  the  proceeds  of  shares  sold  by  him  for 
certain  clients  under  directions  to  deposit  the  proceeds  in  other 
banks  in  their  names,  and  the  bank  made  no  inquiry  as  to  whether 
the  monej'  was  in  his  hands  as  agent  or  otherwise.  Thomson  v. 
Clydesdale  Bank  [1893],  App.  Cas.  282. 


Andrews 


Steele  City  Bank  et  al. 

{Supreme  Court  of  Nebraska,  De^.  8,  i8g8.) 

Authority  of  Receiver — Collateral  Attack.* — When  court  of  compe- 
tent jurisdiction  has  appointed  a  receiver  in  an  action  where  such 
appointment  is  authorized,  the  authority  of  such  receiver  is  not 
open  to  collateral  attack. 

Intervention. — A  receiver  of  a  corporation,  appointed  after  the 
commencement  of  a  suit  against  the  corporation,  may  intervene  in 
such  action  to  defend  the  rights  of  the  corporation. 

Insolvent  Bank — Assets  in  Custody  of  Examiner — Attachment.* — 
Under  the  present  banking  law  (Comp.  St.  c.  8),  when  an  examiner, 
under  authority  of  the  banking-  board,  has  taken  possession  of  the 
assets  of  an  insolvent  bank,  such  assets  are  not  subject  to  attacli- 
ment  at  the  suit  of  a  creditor  of  the  bank  while  possession  is  so 
retained. 

(Syllabus  by  the  Court.) 

*See  notes  at  end  of  case. 


B  CAS]  INSOLVENCY — ATTACHMENT  77 

Andrews  v.  Steele  City  Bank 

Error    by    plaintiff    to    Jefferson     county    district 
court.     A  firmed. 

John  C.  Harti^^coi,  for  plaintiff  in  error. 
E.  H.  HiiisJicnv,  for  defendants  in  error. 

Irvin,  C.  Charles  C.  Andrews  broug-ht  an  action 
ag-ainst  the  Steele  City  Bank,  Charles  B.  Rice,  and 
Vena  Rice,  alleo-ing-  that  he  was  a  depositor  in  the  bank, 
which  had  become  insolvent,  and  was  placed 
in  the  custody  of  the  state  banking"  board  ; 
that  the  Rices,  who  were  husband  and  wife,  were  the 
sole  stockholders  of  the  bank,  and  had  g-iven  a  bond  to 
pay  the  debts  of  the  bank,  and  had  taken  possession  of 
its  assets.  Judg-ment  was  prayed  for  $1,000.  Plain- 
tiff also  sued  out  a  writ  of  attachment,  allegfing*  every 
statutory  ground  except  that  the  debt  was  fraudulently 
contracted.  The  attachment  was  levied  on  certain 
property,  both  personal  and  real.  Thereafter  Henry 
W.  Challis  obtained  leave  to  intervene,  alleg-ingf  that 
he  had  become  the  receiver  of  the  bank.  He  filed  an 
answer,  and  also  moved  to  discharg-e  the  attachment. 
This  motion  was  sustained,  and  from  the  order  dis- 
charg-ing-  the  attachment  plaintiff  prosecutes  proceed- 
ing's in  error. 

An  attack  is  made  ou  the  validity  of  Challis'  appoint- 
ment as  receiver,  and   upon  his  rigfht  to  intervene.     It 
appears  that  the   banking-   board,  pursuant  to  the  pro- 
viso of  section  35  of  the  banking-  act  (Comp. 
St.  c.  8),  authorized  the  stockholders  to  take   Authority  of  rc- 
possession  oi  the  bank  and  its  assets  on  g-iv-  Attack. 
ing-  a  bond  to   settle  the   liabilities  ;  that  a 
bond  was  tendered  and  approved  ;  that  thereafter  the 
board  undertook  to  rescind  its  action,  and  directed  the 
attorney  g-eneral  to  apply  for  a  receiver.     Such  appli- 
cation was  made,  and  Challis  appointed.     It  is  arg-ued 
that  the   board,  after  approving-  the   bond,    had  no  au- 
thority  to   rescind   its  action.       But,   if   this  be   so,    it 
would  affect  only  the  propriety  of  the  appointment, 
and  not  its  validity.     The  appointment  was  made  b}-  a 
court  of  competent  jurisdiction,  and  in  an  action  where 


78  INSOIyVENCY — ATTACHMENT  [vOL  I 

Andrews  v.  Steele  City  Bank 

the  power  to  appoint  existed.  That  is  sufficient  to  pro- 
tect the  receiver's  authority  from  collateral  attack. 
We  have  no  doubt  of  the  receiver's  rii>-ht  to  become  a 
party.  The  bank  was  sued  before  his  appointment. 
He  became,  by  operation  of  law,  its  transferee.  By 
section  45  of  the  Code  of  Civil  Procedure,  where  a 
transfer  of  interest  occurs  otherwise  than  by  death, 
marriage,  or  disability,  the  action  ma}^  either  proceed 
in  the  name  of  the  orig-inal  party,  or  the  successor  in 
interest  may  be  substituted.  By  section  50a,  any 
person  who  claims  an  interest  in  the  success  of  either 
party  may  become  a  party  bv  intervention. 

Intervention.  rry^  ■  i       i  •     i.  i.~-       u.y 

1  he  receiver  had  an  interest  m  the  success 
of  the  bank,  and  he  had  a  right  to  come  in  to  defend 
that  interest.  Arnold  v.  Weimer,  40  Neb.  216,  58  N. 
\V.  709.  From  the  briefs  it  would  seem  that  the  plain- 
tiff considers  that  dissolution  of  the  attachment  was 
sought  simply  on  the  ground  that  the  attached  property 
belonged  to  the  bank,  and  was  attached  as  the  property 
of  Rice.  The  record  does  not  support  that  theory. 
The  ownership  of  the  property  was  only  incidentally 
involved,  and  the  ruling  on  the  motion  does  not  necessa- 
rily adjudicate  that  question.  The  attachment  was 
asked  and  issued  against  all  defendants.  There  is 
nothing  in  the  affidavit,  \vrit,  or  return  to  indicate 
that  the  property  was  seized  as  that  of  one  defendant 
rather  than  the  other.  While  the  evidence  shows  that 
Rice  had  formerly  held  the  legal  title  to  at  least  a  portion 
of  the  property,  it  also  shows  that  he  held  it  as  trustee 
for  the  bank.  Certainly,  the  receiver  had  a  right  to 
resist  the  attachment  in  so  far  as  the  bank's  title  was 
attacked. 

The  plaintiff  insists  that  when  the  banking  board 
approved  the  bond  the  bank  became  the  property  of 
the    obligors,   as  did    all    its  assets,    and  so  subject  to 

attachment;  that  Rice  had  absconded;  that 
Srin  fius'toci^  before  leaving  he  had  conveyed  the  attached 
Attachme'iT"       property  to  persons  named  as  trustees  for 

creditors;  that  this  was  a  prohibited  general 
assignment,  and  was,  consequently,  fraudulent.     It   is 


B  CAS]  INSOIvVENCY — ATTACHMENT  79 

Andrews  v.  Steele  Cit}-  Bank 

apparent  that  the  decision  of  the  district  court  did  not 
involve  a  decision  of  these  issues,  but  went  upon  the 
g-round  that  the  property  was  not  subject  to  attachment. 
The  evidence,  while  on  some  points  conflicting-,  tends 
to  show  that  the  Rices'  bond  wasapproved  November  11, 
1895,  but  that  the}^  straightway  refused  to  take 
possession  of  the  assets.  The  attachment  was  levied 
November  16th.  November  18th  the  board  undertook 
to  rescind  its  action,  and  applied  for  a  receiver.  Prior 
to  November  11th,  an  examiner,  by  direction  of  the 
board,  had  taken  possession  of  the  bank  and  all  its 
assets.  He  did  not  surrender  possession  to  Rice,  but 
retained  possession  for  the  board  until  the  receiver 
qualified,  when  he  delivered  possession  to  him.  Under 
the  former  banking  act  it  was  held  that  the  assets  of  an 
insolvent  bank  were  subject  to  attachment  while  in  the 
hands  of  the  banking-  board,  and  before  a  receiver  was 
appointed,  or  the  sheriff  placed  in  custody.  Arnold  v. 
Weimer,  40  Neb.  216,  58  N.  W.  709.  After  the 
decision  of  that  case,  and  before  the  present  arose,  a 
new  law  w^entinto  effect  (Comp.  St.  c.  8),  section  24  of 
which  gives  authority  to  an  examiner,  when  ordered 
by  the  board,  to  take  possession  of  a  bank,  and  "to 
hold  and  retain  possession  of  all  the  mone3\  rights, 
credits,  assets,  and  property  of  any  description  belong- 
ing to  such  bank,  as  against  any  mesne  or  final  process 
issued  by  any  court  against  such  bank,  corporation, 
partnership,  firm,  or  individual  whose  property  has  been 
taken  possession  of  by  such  examiner,  until  the  state 
banking  board  can  receive  and  act  on  the  report  made 
by  the  examiner  of  said  bank,  and  have  a  receiver  ap- 
pointed, as  provided  in  section  35  of  this  act."  By  this 
provision,  when  an  examiner,  duly  authorized,  takes 
possession,  the  assets  pass  into  the  custody  of  the  state, 
and  are  no  longer  subject  to  attachment.  Whether  the 
bond  became  obligatory  upon  approval,  whether  the 
bank's  assets  thereb}'  passed  to  the  obligors,  whether 
such  result  could  be  defeated  by  the  obligors'  refusing 
to  take  possession  or  b}'  a  subsequent  rescission  by  the 
board  of  its  approval  of  the  bond,  are  questions  which 


80  INSOLVENCY — ATTACHMENT  [vOL  I 

Notes 

may,  perhaps,  arise  on  the  trial  of  the  main  case,  but 
do  not  affect  the  present  motion.  The  property  was 
in  fact  in  the  possession  of  the  examiner,  and  under  the 
protection  of  the  statute.  Althoug-h,  perhaps,  that 
possession  ouofht  to  have  terminated,  it  had  not  in  fact 
done  so.     It  could  not  be  disreg-arded.     Affirmed. 


Receivers — Validity  of  Appointment — Collateral  Attack. — The  re- 
ceiver's title  cannot  be  attacked  on  the  ground  that  his  appointment 
is  illeg-al,  so  long  as  there  is  a  subsisting  order  appointing  him. 
Parties  dissatisfied  must  apply  to  the  court  itself  to  question  the 
validity  of  the  appointment,  and  will  not  be  permitted  to  interfere 
collaterally.  Russell  v.  East  Anglian  R.  Co.,  3  M.  &  G.  104  ;  Ames 
V.  Birkenhead  Docks,  20  Beav.  332  ;  Woodward  v.  Earl  of  Lincoln,  3 
Swanst.  626;  Cook  v.  Citizen's  Nat.  Bank,  73  Ind.  256;  Richards  v. 
People,  81  111.  551  ;  Howard  v.  Palmer,  Walk.  (Mich.)  391  ;  American 
Bank  v.  Cooper,  54  Me.  438  ;  People  v.  vSturtevant,  9  N.  Y.  263,  59 
Am.  Dec.  536;  Sullivan  v.  Judah,  4  Paige  (N.  Y.)  444 ;  Moat  v. 
Holbein,  2  Edw.  Ch.  (N.  Y.  )  188  ;  Richards  v.  West,  3  N.  J.  Eq.  456; 
Basting  v.  Ankeny  (Minn.),  3  Am.  &  Eng.  Corp.  Cas.,  N.  S.,  200. 

If  the  court  had  jurisdiction  of  the  subject-matter,  the  validity  of 
an  appointment  of  a  receiver  by  it  who  has  duly  qualified  cannot  be 
questioned  in  an  action  broug-ht  by  him.  Davis,  Receiver,  etc.,  v. 
Shearer  et  al.,  90  Wisconsin  250,  2  Am.  &  Eng.  Corp.  Cas.,  N.  S.,384. 

In  Russell  v.  East  Anglian  R.  Co.,  3  M.  &  G.  104,  Lord  Truro 
says  :  "It  is  not  open  to  any  party  to  question  the  orders  of  this 
court,  or  any  process  sued  under  the  authority  of  this  court,  by 
disobedience.  I  know  of  no  act  which  this  court  may  do,  which  may 
not  be  questioned  in  proper  form,  and  on  a  proper  application;  but 
I  am  of  opinion  that  it  is  not  competent  for  anyone  to  interfere 
with  the  possession  of  a  receiver,  or  tadisobeyan  injunction,  or  any 
other  order  of  the  court,  on  the  ground  that  such  orders  were  im- 
providently  made.  Parties  may  take  a  proper  course  to  question 
their  validity,  but  while  they  exist  they  must  be  obeyed." 

Nor  can  defendants  who  have  fully  and  completely  recognized  a 
receiver  as  legally  appointed  question,  in  a  collateral  proceeding, 
the  legalitj^  of  such  appointment.  Skinner  v.  Lucas,  68  Mich.  432. 
See  also  Burton  <'.  Schildbach,  45  Mich.  513.  Against  collateral 
questioning  of  appointment  claimed  to  be  void,  see  Connor  v.  Bray, 
83  Ala.  217. 

But  in  People  cu- ;r/.  Wright  v.  Weigley,  155  111.  491,  2,  Am.  & 
Eng.  Corp.  Cas.,  N.  S.,  229,  it  was  'held  that  a  decree  appointing 
a  receiver,  if  absolutely  void,  is  open  to  collateral  attack  upon  a 
proceeding  for  contempt  because  of  the  disobedience  of  the  maridate 
of  such  decree. 

Attachment — Assets  in  Custody  of  State. — It  may  be  stated  as  a 
general  rule  that  property  or  money  in  the  custody  of  the  law  can- 
not be  attached. — United  States. — Turner  v.  Fendall,  1  Cranch  (U. 
S.)  117;  Perego  z'.  Bonesteel,  5  Biss.  (U.  S. )  66;  Naumburg  z'.  Hyatt, 
24  Fed.  Rep.  898. 


B  CAS]  PLEADING  81 

U.  S.  Nat.  Bank  of  New  York  v.  Venner 

California. — Clymer  v.  Willis,  3  Cal.  363,  58  Am.  Dec.  414. 

Illinois. — Reddick  v.  Smith,  4  111.  451  ;  Lightner  v.  Steinagel,  33 
111.  513,  85  Am.  Dec.  292.  See  also  Pierce  v.  Carleton,  12  111.  358,  54 
Am.  Dec.  405. 

Iowa. — Hamilton  Brown  Shoe  Co.  v.  Mercer,  84  Iowa  537,  35  Am. 
St.  Rep.  331. 

Kansas. — McKinney  v.  Purcell,  28  Kan.  446. 

Maryland.— G\enn  v.  Gill,  2  Md.  18  ;  Farmers  Bank  v.  Beaston,  7 
Gill  &'J.  (Md.)  421,  28  Am.  Dec.  226.  See  also  McPherson  v.  Suow- 
den,  19  Md.  233  ;  Groome  v.  Lewis,  23  Md.  152,  87  Am.  Dec.  563. 

3IassachHsefls. — Wilder  v.  Bailey,  3  Mass.  289  ;  Pollard  v.  Ross,  5 
Mass.  319  ;  Vinton  v.  Bradford, 13  Mass.  114,  7  Am.  Dec.  119  ;  Thomp- 
son V.  Brown,  17  Pick.  (Mass.),  462.  See  also  Watson  v.  Todd,  5 
Mass.  271. 

Minnesota. — St.  Paul  Second  Nat.  Bank  v.  Schrauck,  43  Minn.  38. 

New  York. — Benson  v.  Berry,  55  Barb.  (N.  Y.)  620.  See  also 
Dunlop  V.  Patterson  F.  Ins.  Co.,  74  N.  Y.  145,  30  Am.  Rep.  283  ; 
Wehle  V.  Conner,  83  N.  Y.  231. 

North  Carolina. — Alston  v.  Clay,  2  Hayw.  (N.  Car.)  171. 

Ohio. — Dawson  v.  Holcomb,  1  Ohio  (pt.  2)  275,  13  Am.  Dec.  618; 
Davidson  v.  Kuhn,  1  Disney  (Ohio)  405. 

South  Carolina.— Yoxxng  z'.  Young,  2  Hill  L.  (S.  Car.)  426 ;  Mc- 
Kenzie  v.  Noble,  13  Rich.  L.  (S.  Car.)  147.  See  also  Roddev  v. 
Erwin,  31  S.  Car.  36. 

Tennessee. — Drane  v.  McGabock,  7  Humph.  (Tenn.)  132. 

Texas. — Scott  v.  McDaniel,  67  Tex.  315. 

Fifr/wow/.— Prentiss  v.  Bliss,  4  Vt.  513,  24  Am.  Dec.  631. 


United  States  Nat.  Bank  of  New  York 
Venner. 

(Supreme  Judicial  Court  of  Massachusetts,  Jan.  7,  iSgg.) 

Action  on  J  udgment —  Identity  of  Plaintiff — Variance.* — In  an  action 
on  a  judgment  recovered  in  the  state  of  New  York,  the  writ  described 
the  plaintiff  as  the  United  States  National  Bank  of  New  York, 
whereas  the  judgment  was  in  favor  of  the  "United  States  National 
Bank"  ;  but  the  complaint  set  forth  that  plaintiff  was  duly  incorpo- 
rated under  the"National  Bank  Act, "and  carrying  on  business  in  the 
city  of  New  York  as  a  national  bank,  and  plaintiff's  evidence  tended 
to  show  its  identity  with  the  bank  which  recovered  the  judgment, 
and  that  there  was  no  other  bank  in  New  York  having  the  same  or 
a  similar  name,  and  defendant  put  in  no  evidence.  Held,  that  even 
if  the  writ  was  construed  as  setting  forth  plaintiff's  title,  there  was 
no  material  variance,  and  the  trial  court  was  warranted  in  finding 
that  plaintiff^  was  the  same  plaintiff  that  recovered  the  judgment 
declared  on. 

*See  note  at  end  of  case. 
B  CAS— 6 


82  PLEADING  [vol  I 

U.  S.  Nat.  Bank  of  New  York  v.  Venner 

Exceptions    by    defendant    from    Suffolk    county 
superior  court.      Exceptions  overruled. 

F.  Dodge  and  C.   Walcott,  for  plaintiff. 

C.  F.  Choate,Jr.,  and  A.  F.  Clark,  for  defendant. 

Lathrop,  J.  The  writ  in  this  case  describes  the 
plaintiff  as  the  United  States  National  Bank  of  New 
York,  N.  Y.,  a  banking- association  or  corporation  duly 
established  by  law,  being-  duly  org-anized  and  incor- 
porated under  the  laws  of  the  Unites  States  of 
America,  and  having-  its  usual  place  of  business 
in  the  city  and  state  of  New  York.  The  declara- 
tion is  as  follows:  "And  the  plaintiff  says  that 
by  the  consideration  of  the  supreme  court  of  the  state 
of  New  York  held  at  New  York  for  the  city  and  county 
of  New  York,  in  said  state  of  New  York,  on  the  7th  day 
of  January,  1897,  it  duly  recovered  judg-ment  ag-ainst 
the  defendant  for  $7,428.25  debt  or  damag-e,  tog-ether 
with  SI, 221. 95  interest,  and  cost  of  suit,  taxed  at 
$118.40,  amounting-  in  all  to  38,768.60;  that  said  judg-- 
ment  had  never  been  vacated,  set  aside,  or  satisfied, 
and  now  remains  in  full  force  and  effect,  as  appears 
irom  the  records  of  said  court,  and  the  defendant  owes 
it  the  amount  of  said  judg-ment,  with  interest."  The 
answer  was  ag-eneral  denial.  There  was  also  filed  by 
the  defendant  a  special  demand  for  proof  "of  the  in- 
corporation of  the  United  States  National  Bank  of  New 
York,  N.  Y.,  plaintiff."  At  the  trial  the  plaintiff  put 
in  evidence  certified  copies  from  the  comptroller  of  the 
currency  of  its  articles  of  association,  its  org-anization 
certificate,  and  the  certificate  authorizing-  it  to  do 
business.  These  documents  showed  the  incorporation 
and  existence  of  a  national  bank  under  the  name  of 
"The  United  States  National  Bank  of  the  City  of  New 
York."  The  plaintiff  put  in  evidence  the  judg-ment 
roll  of  the  supreme  court  of  New  York,  duly  authen- 
ticated as  required  by  Pub.  St.  c.  169,  §  67,  and  Rev. 
St.  U.  S.  §  905.  The  plaintiff  also  put  in  evidence 
tending-  to  prove  the  identity  of  the  bank  that  recovered 
the    judg-ment   with   the   plaintiff    in   this    action,  and 


B  CAS]  PLEADING  83 

U.  S.  Nat.  Bank  of  New  York  v.  Venner 

evidence  tending-  to  show  that  there  was  not  in  New 
York  any  other  bank  having"  the  same  or  a  similar 
name.  The  defendant  put  in  no  evidence  and  asked 
the  judg-e  to  rule  that  the  plaintiff  could  not  recover. 
The  judg-e  refused  so  to  rule,  and  found  for  the 
plaintiff. 

The  only  ground  urg-ed  by  the  defendant  in  this 
court  in  favor  of  his  request  for  a  ruling-  is  that  there 
is  a  variance  betw^een  the  alleg-ation  and  the  proof,  in 
that  the  writ  describes  the  plaintiff  as  the  United  States 
National  Bank  of  New  York,  whereas  the  judg-ment 
was  in  favor  of  the  "United  States  National  Bank." 
But  an  examination  of  the  judg-ment  roll  shows  that 
while  the  judg-ment  was  rendered  in  favor  of  "The 
United  States  National  Bank,"  called  in  one  place  in 
the  roll  the  "United  States  National  Bank,"  the 
complaint  sets  forth  that  the  plaintiff  is  "an  association 
or  corporation  duly  org-anized  and  existing-  under  the 
act  of  cong-ress  of  the  United  States  known  as  the 
'National  Bank  Act,'  and  carrying-on  business  in  the 
city  of  New  York  as  a  national  bank."  We  are  of 
opinion  that  there  is  no  merit  in  the  defense.  If  the 
defect  had  been  specifically  pointed  out  in  the  superior 
court,  the  writ  could  have  been  amended  by  setting- 
forth  with  accuracy  the  name  of  the  plaintiff,  and  by 
alleging-  in  the  declaration  that  the  plaintiff  recovered 
judg-ment  in  the  name  of  the  United  States  National 
Bank.  And,  if  we  considered  it  necessary  that  this 
should  be  done,  we  should  not  send  the  case  back 
for  a  new  trial,  as  the  amendment  could  be  made  in 
the  superior  court  at  any  time  before  judg-ment. 
Cleaves  v.  Lord,  3  Gray,  66;  Nichols  v.  Prince,  8  Allen, 
404,  408;  Denhani  v.  Bryant,  139  Mass.  110,  112,  28  N. 
E.  691.  It  is  obvious,  however,  that  the  words  in  the 
writ  in  the  present  action, "of  New  York,  N.  Y.,"  do 
not  necessarily  import  to  be  a  part  of  the  plaintiff's 
name,  but  may  be  considered  as  descriptive  only.  If 
so,  there  is  no  variance.  Thatcher  v.  Bank,  19  Mich. 
196.  But  if  the  words  "of  New  York,  N.  Y.,"  are 
considered  as  part  of  the  title  of   the   bank,    we  are  of 


84  PLEADING  [vol  I 

Note 

Opinion  that  no  material  variance  is  shown.  In  Bank 
V.  Lee,  112  Mass.  521,  the  writ  described  the  plaintiff 
as  "the  Washing-ton  County  National  Bank,  a  corpora- 
tion duly  established  by  law,  and  doing-  business  in 
Greenwich,  in  the  state  of  New  York."  To  prove  its 
corporate  existence,  it  put  in  evidence  an  org-anization 
certificate  of  "the  Washing-ton  County  National  Bank 
of  Greenwich,"  to  be  located  in  the  town  of  Greenwich, 
county  of  Washing-ton,  and  state  of  New  York,  and  a 
certificate  of  the  comptroller  of  the  currency  that  "the 
Washing-ton  County  National  Bank  of  Greenwich  in 
the  county  of  Washing-ton  and  the  state  of  New  York," 
had  been  duly  org-anized.  It  was  contended  that  on  ac- 
count of  the  variance  of  name  there  was  no  proof  of  the 
org-anization  of  the  plaintiff  as  a  corporation.  But  it 
was  held  that,  "in  absence  of  evidence  that  there  was 
any  other  bank  of  that  name  at  that  place,  the  evidence 
introduced  warranted  the  inference  that  the  org-aniza- 
tion proved  was  that  of  the  plaintiff  corporation."  See, 
also,  Thatcher  v.  Bank,  2(hi  supra.  The  question  be- 
fore the  court  in  the  case  at  bar  was  whether  the  plain- 
tiff in  this  action  was  the  same  plaintiff  that  recovered 
the  judg-ment  declared  on.  There  can  be  no  doubt  that 
the  judg-e  was  amply  warranted  in  finding-  that  it  was. 
Exceptions  overruled. 


NOTE. 

Variance  in  Corporate  Name  in  Judgments. — Corporate  names  are 
no  exception  to  the  g-eueral  rule  applied  to  natural  persons  :  that 
names,  with  other  circumstances,  are  facts  from  which  identity  can 
be  presumed  or  established  ;  and  where  a  judg-ment  is  rendered 
ag"ainst  a  corporation  by  one  name,  and  execution  issued  upon  that 
judg-ment  under  a  different  name,  if  both  names  are  in  fact  applied 
to  the  same  corporation,  the  apparent  difference  between  the  two 
names  may  be  explained  and  harmonized  by  extrinsic  evidence. 
Talbot  V.  Hale.  72  Ind.  1. 

But  if  the  name  of  the  corporation  is  mistaken,  materially  and 
substantially,  the  corporation  cannot  be  affected  by  the  proceeding's, 
and  the  test  seems  to  lie  in  the  distinction  made  between  a  variance 
in  words  and  syllables  onU^  and  a  variance  in  substance.  If  a  cor- 
poration is  sued  by  a  name  varying- only  in  words  and  syllables,  and 
not  in  substance,  from  the  true  name,  the  misnomer  must  be  pleaded 


B  CAS]  DISTRIBUTION  OF  ASSETS  85 

Citizens'  Bank  of  Mound  City  v.  State 

in  abatement.  Wilson  v.  Baker,  52  Iowa  423.  See  also  Burnham  v. 
Savings  Bank,  5  N.  H.  446;  Sunapee  v.  Eastman,  32  N.  H.  470;  La- 
fayette Ins.  Co.  V.  French,  18  How.  (U.  S.)  404;  Lehman  v.  Warner, 
6l"Ala.  455  ;  Medway  Cotton  Manufactory  v.  Adams,  10  Mass.  360  ; 
African  Society  v.  Varick,  13  Johns.  (N.  Y.)  38. 

But  if  the  name  be  mistaken  in  substance,  the  suit  cannot  be  regard- 
ed as  against  the  corporation.  Gilbert  v.  Nantucket  Bank,  5  Mass. 
97;  Com.  v.  Dedham,  16  Mass.  141  ;  Medway  Cotton  Manufactory  v. 
Adams,  10  Mass.  360;  Society  for  Propagating  the  Gospel  v.  Young, 
2  N.  H.  310  ;  Bank  of  Utica  v.  Smalley,  2  Cow.  (N.  Y.)  770,  14  Am. 
Dec.  526. 


Citizens'  Bank  of  Mound  City  et  al. 
State  ex  rel.  Attorney  General  et  al. 

[Court  of  Appeals  of  Kansas,  Sept.  22,  1S9S.) 

Banks —  Insolvency  —  Distribution  —  Statutory  Provisions.* — The 
rule  declared  in  Bank  v.  Branch,  45  Pac.  88,  57  Kan.  27,  as  govern- 
ing proof  of  claims  by  and  dividends  to  creditors  of  an  assigned 
corporate  estate,  where  such  creditors  held  notes  negotiated  and 
guarantied  by  the  corporation,  and  secured  by  mortgages  on  real 
estate  (that  is,  that  dividends  should  be  paid  out  upon  the  amount 
reinaining  unpaid  upon  such  claims  after  such  creditors  should 
have  exhausted  their  special  liens) ,  is  here //£'/</ controlling  in  re- 
spect to  the  distribution  of  the  estate  of  an  insolvent  banking  cor- 
poration in  the  hands  of  a  receiver  appointed  under  the  provisions 
of  the  state  banking  law. 

(Syllabus  by  the  Court.) 

Error  by  receiver  from  Linn  county  district  court. 
Reversed. 

John   W.  Poore,  for  plaintiff  in  error. 
Stebbius  &  Evans.,  for  defendants  in  error. 

Milton,  J.  The  proceeding's  of  the  trial  court 
were  upon  an  agreed  statement  of  facts,  in  substance 
as  follows:  "On  July  19,  1893,  in  a  suit  broug-ht  by 
the  attorney  g-eneral,  a  receiver  was  appointed  by  the 
district  court  of  Linn  county  to  wind  up  the  affairs  of 
the  Citizens'  Bank  of  Mound  City,   Kansas;  the  bank 

*See  notes  at  end  of  case. 


86  DISTRIBUTION  OF  ASSETS  [vOL  I 

Citizens'  Bank  of  Mound  City  v.  State 

being-  insolvent.  A.  G.  Seaman  was  duly  appointed 
receiver,  and  immediately  thereafter  took  chargfe  of  the 
affairs  and  assets  of  the  bank.  While  the  bank  was  a 
g-oingf  concern,  Milton  F.  Mitchell  had  received  from 
it  collateral  notes  amountintr  to  81,044.16  to  secure  his 
deposit  of  31,375.68.  On  February  6,  1894,  Mitchell 
presented  his  claim  upon  his  certificate  of  deposit  to 
the  receiver  for  allowance,  and  the  same  was  thereupon 
allow^ed  in  full.  Three  days  later  Mitchell  reported 
to  the  receiver  that  he  had  collected  from  the  collateral 
notes  held  by  him  the  sum  of  51,089.16,  and  had  applied 
it  upon  his  claim  against  the  bank.  In  November, 
1893,  the  receiver  declared  and  paid  out  a  dividend  of 
ten  percent.,  and  in  April,  1894,  he  declared  and  paid 
another  dividend  of  five  per  cent.,  but  paid  no  part  of 
either  of  the  dividends  to  Mitchell,  and  refused  to 
pay  any  dividend  to  him.  On  June  14,  1894,  Mitchell 
filed  a  motion  asking"  the  court  to  order  the  receiver 
to  pay  fifteen  per  cent,  upon  his  claim  as  allowed; 
and  three  da\^s  later  the  court  heard  the  motion, 
and  granted  the  order  as  pra^^ed  for.  The  receiv- 
er, for  himself  and  on  behalf  of  the  unsecured  cred- 
itors of  the  bank,  brings  these  pi:oceedings  for  a  re- 
view of  said  order."  The  question  for  decision  is 
whether  the  defendant  in  error  is  entitled  to  dividends 
upon  the  whole  amount  of  his  claim  as  proven  and  al- 
lowed, irrespective  of  the  collateral  security  held  by 
him.  Upon  this  question  the  courts  of  the  various  states 
are  somewhat  unequally  divided,  a  majority  maintaining 
the  affirmative  position.  An  examination  of  the  author- 
ities indicates  that  the  rule  applicable  to  the  distribu- 
tion of  an  estate  assigned  for  the  benefit  of  the  creditors 
of  an  insolvent  govern  in  the  distribution  of  the  estate 
of  an  insolvent  corporation  in  the  hands  of  a  receiver. 
Probably  the  most  exhaustive  consideration  of  the 
question  herein  involved  to  be  found  in  any  one  case 
is  given  in  the  opinion  of  the  United  States  circuit  court 
of  appeals  in  the  case  of  Bank  v.  Armstrong,  8  C.  C. 
A.  155.  59  Fed.  372,  in  which  it  was  held  that  the  claims 
of   creditors    of   an    insolvent  national  bank  cannot  be 


B  CAS]  DISTRIBUTION  OF  ASSETS  87 

Citizens'  Bank  of  Mound  City  v.  State 

reduced  by  any  credit  for  collections  from  collateral 
made  after  the  declared  insolvency  of  the  bank, 
whether  before  or  after  proof  of  claims.  An  interest- 
ing- case  holding"  the  opposite  view  is  that  of  State  v. 
Nebraska  Sav.  Bank  (Neb.)  58  N.  W.  976,— a  case 
arising-  under  the  provisions  of  the  banking-  law  of  that 
state.  The  supreme  court  of  this  state  seems  to  have 
adopted  what  might  be  denominated  the  minority  view» 
in  the  case  of  Bank  v.  Branch,  57  Kan.  27,  45  Pac.  88. 
In  the  opinion  the  court  said:  "The  assets  of  the  es- 
tate should  be  distributed  upon  equitable  principles, 
and  it  is  a  recog-nized  rule  of  equity  that  where  there 
are  two  funds  to  which  a  creditor  can  resort,  and  other 
creditors  are  limited  to  one  of  them,  the  former  will  be 
compelled  to  exhaust  the  fund  upon  which  he  has  an 
exclusive  lien,  and  will  be  permitted  to  resort  to  the 
other  for  the  deficiency  only.  Burnham  v.  bank,  55 
Kan.  545,  40  Pac.  912;  Gore  v.  Royse,  56  Kan.  771,  44 
Pac.  1053;Wurtz  v.  Hart,  13  Iowa,  515;  I)i  r^^Knowles 
13  R.  I.  90;  Besley  v.  Lawrence,  11  Paig-e,  581.  While 
the  assignee  allowed  the  claims  of  those  who  held  the 
g-uarantied  mortg-ag-e  bonds  to  the  full  amount,  payment 
of  a  part  of  the  debt  will  certainly  be  realized  from  the 
mortgag-e  security.  It  would  be  inequitable  to  allow 
those  claimants  a  f)7-o  rata  dividend  on  the  whole 
amount  of  their  claim,  when  payment  of  part,  if  not 
all,  of  it  may  be  received  from  the  mortg^ag-e  securities 
to  which  they  have  exclusive  rig-ht."  Also:  "xA.  dis- 
tribution may  be  made  among-  those  holding-  the  mort- 
g-ag-e securities  when  they  have  exhausted  their  liens» 
and  then  dividends  should  be  declared  upon  the  amount 
remaining-  unpaid,  and  not  upon  the  full  amount  of  the 
claims  as  allowed."  In  a  later  case  (Security  In  v.  Co. 
V.  Richmond  Nat.  Bank,  58  Kan.  414,  49  Pac.  521)  the 
doctrine  declared  in  the  preceding  case  was  expressly 
adopted  and  approved.  In  the  lig-ht  of  these  two  cases» 
it  appears  that  the  decision  of  the  trial  court  was  erro- 
neous. It  will  therefore  be  reversed,  and  the  cause 
remanded  for  further  proceeding-s. 


88  DISTRIBUTION  OF  ASSETS  [VOL  I 

NOTES 
DIVIDENDS  OF  SECURED  CREDITORS. 

(I).  General  Rule. — The  prevailing-,  though  not  the  universal, 
rule  is  that  a  secured  creditor  ma3'  prove  and  receive  a  dividend 
on  his  whole  debt  without  regard  to  his  special  security  for 
the  whole  or  a  part  of  his  debt.  People  v.  Remington,  121 
N.  Y.  328.  Citing  Story  Eq.  Jur.,ij524;  /«  r^  Bates,  118  111.  524, 
59  Am.  Rep.  383  ;  West  v.  Rutland  Bank,  19  Vt.  463  ;  Moses  v.  Ran- 
let,  2  N.  H.  488  ;  Findlay  v.  Hosmer,  2  Conn.  350 ;  Logan  v.  Ander- 
son, 18  B.  Mon.  (Ky.)  114.  See  also  Matter  of  Ives,  25  App.  N.  Cas. 
(N.  Y.  Supreme  Ct.)  63  ;  Murray  v.  Hutcheson,  8  App.  N.  Cas.  (N.  Y. 
C.  PI.)  423;  Detroit  Third  Nat.  Bank  v.  Haug,  82  Mich.  607; 
Southern  Michigan  Nat.  Bank  v.  Byles,  67  Mich.  296  ;  Morris  v. 
Olwine.  22  Pa.  St.  441  ;  Patten's  Appeal,  45  Pa.  St.  151,  84  Am.  Dec. 
479  ;  Brough's  Estate,  71  Pa.  St.  460  ;  Graeff's  Appeal,  79  Pa.  St. 
146  ;  Keim's  Appeal,  27  Pa.  St.  42  ;  Miller's  Appeal,  35  Pa.  St.  481  ; 
In  re  Bates,  118  111.  524,  59  A.m.  Rep.  383  ;  Furness  v.  Union  Nat. 
Bank,  147  111.  570;  Levy  v.  Chicago  Nat.  Bank,  57  111.  App.  143  ; 
Kauffman  lu  Hudson,  65  Tex.  716  ;  Atlantic  Phosphate  Co.  v.  Law 
(S.  Car.  1896),  23  S.  E.  Rep.  955  ;  Greene  v.  Jackson  Bank,  18  R.  L 
779,  following  Allen  v.  Danielson,  15  R.  I.  480,  which  overruled 
Knowles'  Petition,  13  R.  I.  90. 

If  a  creditor  has  two  separate  demands  against  the  assigned 
estate,  one  secured  by  first  mortgage  and  the  other  by  second 
mortgage,  and  he  is  paid  in  full  the  debt  secured  by  the  prior  lien 
out  of  the  proceeds  of  the  mortgaged  propertj^  he  will  not  be 
entitled  to  a  dividend  on  both  of  his  claims,  though  they  are  allowed 
as  a  single  demand,  but  only  to  a  dividend  on  the  debt  not  so  paid. 
By  the  payment  of  the  first  debt  in  full  it  is  extinguished,  and  no 
dividend  will  be  made  on  it  in  favor  of  the  creditor  to  apply  on  his 
second  claim.  Peoria  First  Nat.  Bank^z;'.  Commercial  Nat.  Bank, 
151  111.  308. 

(2.)  Minority  Rule. — In  accordance  with  the  practice  in  bank- 
ruptcy proceedings  the  rule  in  Maryland,  and  some  other  states,  is 
that  a  creditor  of  an  insolvent,  who  holds  a  collateral  security,  must 
either  surrender  the  collateral,  or  have  its  value  determined  by  the 
court,  and  his  claim  will  be  allowed  for  the  difference  between  its 
amount  and  the  value  of  the  collateral. 

3Iaryland. — National  Union  Bank  v.  National  Mechanics'  Bank,  80 
Md.  371,  45  Am.  St.  Rep.  350,  where  Boyd,  J.  said  :  "The  value  of  the 
securities  thus  held  should  be  ascertained  and  credited  on  the  claim 
before  distribution  is  made.  That  can  be  easily  done  by  relevant 
testimony,  taken  under  authoritj'  of  the  court,  when  no  sale  has 
taken  place.  This  was  the  practice  in  bankruptcy  proceedings,  and 
is  not  without  precedent  in  other  courts.  See  In  re  Bridgman,  4 
Fed.  Cas.  No.  1866,  1  N.  B.  R.  312  ;  Amory  v.  Francis,  16  Mass.  308  ; 
Farnum  v.  Boutelle,  13  Met.  (Mass.)  159.'" 

Iowa. — In  Iowa  a  creditor,  under  an  assignment,  who  has  special 
security',  ma}'  be  required  by  the  other  creditors  to  resort  to  this, 
and  can  claim  a  dividend  only  on  the  balance  after  exhausting  the 
property  on  which  he  has  a  special  lien.  Wurtz  v.  Hart,  13  Iowa  515, 
Wkight,  J.  saying:  "Or  the  rule  may  be  stated  thus,  that  if  a  cred- 
itor has  two  funds,  out  of  which  he  may  make  his  debt,  he  maj'  be 
required  to  resort  to  that  fund  upon  which  another  creditor  has  no 
lien."     See  also  Dickson  v.  Chorn,  6  Iowa  19,  71  Am.  Dec.  382. 


B  CAS]  ULTRA  VIRES  89 

First  Nat.  Bank  of  Grand  Forks,  N.  D.   v.  Anderson 

Where  an  assignee  for  the  purpose  of  obtaining  possession  of  cer- 
tain collateral  securities  held  by  a  creditor,  paid  to  him  the  full 
amount  of  his  claim  more  than  a  year  before  it  became  due,  under  an 
agreement  that  there  should  be  no  rebate  of  interest  on  account  of 
such  advance  paN'nient,  it  was  held  that  the  assignee  could  not  af- 
terwards recover  of  said  creditor  the  unearned  interest  on  said 
claim  which  had  been  paid  b^-  his  assignor  before  the  assignment. 
Satterlee  v.  Kirby,  86  Iowa  518. 

Massachusetts. — Where  a  debtor  who  has  mortgaged  personal 
property  to  secure  a  debt,  dies  insolvent,  the  mortgagee  cannot  prove 
his  debt  in  full,  unless  he  first  waives  his  mortgage,  but  if  he  applies 
the  amount  of  the  mortgaged  property  towards  the  discharge  of  his 
claim,  and  a  balance  is  left  unpaid,  he  may  prove  such  a  balance 
before  the  commissioners.  Farnum  z'.  Boutelle,  13  Met.  (Mass.)  159, 
iited  and  relied  tipoii  in  Merchants'  Nat.  Bank  v.  Eastern  R.  Co., 
124  Mass.  524. 

California. — Under  the  California  Act  of  1895, a  secured  creditor  can 
prove  his  claim  only  for  the  balance  after  deducting  the  value  of  his 
security,  or  he  may  release  his  security  to  the  assignee  and  prove 
his  whole  debt. 

Minnesota. — The  statute  of  this  state  requires  the  secured  cred- 
itor to  first  exhaust  his  securitv,  or  release  it  to  the  assignee.  Rev. 
Stat.  1881,  c.  41,  ^  28. 

And  where,  between  the  time  of  the  assignment  and  the  time  of 
payment  by  a  trustee,  a  creditor  has  realized  on  collaterals,  the 
amount  so  realized  must  be  deducted  in  fixing  the  amount  to  which 
he  is  entitled  by  way  of  dividend.  Baltimore  Third  Nat.  Bank  v. 
Lanahan,  66  Md.  461.  And  see  Hall  v.  Farmers'  Nat.  Bank,  53  Md. 
120. 


First  Nat.  Bank  of  Grand  Porks,  N.  D. 
Anderson. 

(Supreme  Court  of  the  United  States,  Jan.  2j,  iSc^g.) 

Action  against  National  Bank — Federal  Jurisdiction. — Notes  secured 
by  a  mortgage  had  been  indorsed,  and  the  mortgage  assigned  to  the 
defendant  national  bank,  as  collateral  security  for  a  loan,  and  plain- 
tifi"  had  authorized  the  bank  to  sell  the  notes  to  a  third  party,  take  up 
the  loan,  and  remit  the  balance;  but,  instead  of  doing  this,  the  bank 
had  undertaken  to  purchase  the  notes  itself,  and  had  not  accounted 
for  their  value.  In  an  action  against  the  bank  to  recover  the  value 
of  the  notes,  it  was  held  b^-  the  state  court  that  it  was  not  an  ultra 
vires  act  on  the  part  of  the  bank  to  undertake  to  sell  the  notes  as 
defendant's  agent,  and  that  if  it  was  guilty  of  conversion  plaintift' 
could  recover.  Held,  on  motion  to  dismiss  a  writ  of  error  to  revise 
a  judgment  of  the  state  court,  that  the  contention  that  no  federal 


90  ULTRA  VIRES  [vOL  I 

First  Nat.  Bank  of  Grand  Forks,  N.  D.  v.  Anderson 

question  was  involved,  because  such  judgment  rested  on  two  grounds, 
one  of  which  was  broad  enough  in  itself  to  sustain  the  judgment 
and  involved  no  federal  question,  was  without  merit. 

Same — Conversion — Ultra  Vir^s.* — The  bank  was  liable  for  the 
value  of  the  notes  as  for  a  conversion,  even  though  it  was  not  with- 
in its  powers  to  sell  them  as  the  owner's  agent. 

Error  by  defendant  to  the  Supreme  Court  of  the 
State  of  North  Dakota.     Affirmed. 

Burke  Corbet,  for  plaintiff  in  error. 
Henry  W.  Phelps,  for  defendant  in  error. 

Mr.  Chief  Justice  Fueler  delivered  the  opinion 
of  the  court. 

This   was  an   action   at  law   broug-ht  by  Anderson 

against  the  First  National  Bank  of   Grand   Forks,    N. 

D.,  in  the  district  court  for  the  first  judicial 

' district  of    North    Dakota,   to    recover   the 

balance  of  the  value  of  certain  notes  belong-inor  to 
Anderson,  which  he  alleg^ed  the  bank  had  converted. 

The  notes  amounted  to  S7,000,  secured  by  mortgag-e, 
and  had  been  indorsed,  and  the  morto-age  assig-ned,  to 
the  bank  as  collateral  security  "for  a  loan  of  S2,000, 
and  Anderson  had  authorized  the  bank  to  sell  the  notes 
to  a  third  party,  take  up  the  loan,  and  remit  the 
balance.  But,  instead  of  doing-  this,  the  bank,  ac- 
cording- to  Anderson,  had  undertaken  to  purchase  the 
notes  itself,  and  had  not  accounted  for  their  value. 

The  cause  was  tried  four  times,  and  four  times  car- 
ried to  the  supreme  court  of  North  Dakota.  4  N.  D, 
182,  59  N.  W.  1029;  5  N.  D.  80,  64  N.  W.  114;  5  N.  D. 
451,  67  N.  W.  821;  6  N.  D.  497,  72  N.  W.  916.  On  the 
fourth  appeal,  a  judg-ment  in  favor  of  Anderson  was 
aflBrmed  by  the  supreme  court,  and  this  writ  of  error 
to  revise  it  was  allowed,  which  defendant  in  error  now 
moves  to  dismiss,  or,  if  that  motion  is  not  sustained, 
that  the  judg-ment  be  affirmed 

By  exceptions  to  the  admission  of  certain  testimony 
taken  on  the  trial,  and  by  the  assig-nment  of  errors 
in  the  supreme  court,  plaintiff  in  error  raised  the  point 

*See  note  at  end  of  case. 


B  CAS]  ULTRA  VIRES  91 

First  Nat.  Bank  of  Grand  Forks,  N.  D.  v.  Anderson 

that,  under  the  statutes  of  the  United  States  in  respect 
of  national  banks,  it  was  not  within  its  power  to  become 
the  agfent  of  defendant  in  error  to  sell  the  notes  in 
question  to  a  third  person,  and  not  within  the  power  of 
its  cashier,  who  conducted  the  transaction,  to  bind  the 
bank  by  such  contract  of  ag-ency. 

On  the  third  appeal  (5  N.  D.  451,  67  N.  W.  821),  the 
supreme  court  ruled  that  "when  a  national  bank  holds 
notes  of  its  debtor  as  collateral  to  his  indebtedness  to 
the  bank,  it  may  lawfully  act  as  agent  for  him  in  the  sale 
of  such  notes  to  a  third  person,  such  ag-ency  being- 
merely  incidental  to  the  exercise  of  its  conceded  power 
to  collect  the  claim  out  of  such  collateral  notes" ;  but,  fur- 
ther, that,  even  thoug-h  the  act  of  agency  were  ?///ra 
Z'i7'es,  yet  if  the  bank,  instead  of  selling-  the  notes  to  a 
third  person,  had,  without  the  owner's  knowledg-e, 
sold  them  to  itself,  it  would  be  g-uilty  of  conversion, 
and  could  be  held  responsible  therefor.  As  to  the 
cashier,  the  court  held  that,  on  the  pleadings  and  facts 
in  the  case,  his  act  was  the  act  of  the  bank. 

The  supreme  court,  in  its  opinion  on  the  fourth  appeal 
(6  N.  D.  497,  509,  72  N.  W.  916),  among  other  things, 
said:  "The  question  of  /(/t}-a  viVeshRs,  been  alread}^ dis- 
cussed in  a  previous  opinion.  See  5  N.  D.  451,  67  N.  W. 
821.  We  have  nothing  to  add  on  that  point.  The  recent 
decision  of  the  federal  supreme  court  cited  by  counsel 
for  appellant  (Bank  v.  Kennedy,  167  U.  S.  362,  17  Sup. 
Ct.  831)  does  not  appear  to  us  to  call  for  any  change  of 
our  former  ruling  on  this  question.  What  w^e  said  in 
our  opinion  on  the  third  appeal,  on  the  subject  of  the 
authority  of  the  cashier  to  bind  the  defendant  by  creat- 
ing the  relation  of  principal  and  agent  between  plain- 
tiff and  defendant,  is  still  applicable  to  the  case  on  the 
record  now  before  us.  In  its  answer  and  the  brief  of 
its  counsel,  the  defendant  admits  that  the  writing  of 
the  letters  referred  to  was  its  act,  and  not  the  act  of  an 
unauthorized  agent.  By  its  own  pleading  and  admis- 
sions, it  has  precluded  itself  from  raising  the  point 
that  the  cashier  had  no  power  to  bind  it,  by  agreeing 
that  the  bank  would  act  as  agent  for  the  plaintiff." 


92  ULTRA  VIRES  [vOL  I 

First  Nat.  Bank  of  Grand  Forks,  N.  D.  v.  Anderson 

The   argument    urg^ed    in    support  of  the  motion  to 

dismiss   is,   principally,    that  the  judg-ment 

ArtiniiHfriiiMst  jfat- of  the  statc   supreme    court   rested   on  two 

loiiHl  Bank— Fed-  .  r         ,    •     i  i  ^  i      •        'j 

erai  Jurisdittion.  g^rounds,  One  oi  which,  Droad  enoug"h  in  it- 
self to  sustain  the  judg-ment,  involved  no 
federal  question. 

This  contention  is  so  far  justified  as  to  gfive  color  to 
the  motion,  althoug-h,  under  our  decision  in  Bank  v. 
Townsend,  139  U.  S.  67,  11  Sup.  Ct.  496,  we  must 
decline  to  sustain  it,  while,  at  the  same  time,  that  case 
affords  sufficient  authority,  ifauthorit}^  were  needed, 
for  an  affirmance  of  the  judg-ment. 

There,  bonds  have  been  sold  and  delivered  to  a  nat- 
ional bank  at  a  certain  price,  under  an  ag-reement  that 
the  bank  would,  on  demand,  replace  them  at  that  or  a 
less  price,  and  the  bank  had  refused  com- 
sron^itraTires.  p^ance.  In  an  action  ag-ainst  the  bank,  its 
defense  was,  in  part,  that,  by  reason  of 
want  of  authority  to  make  the  alleg"ed  ag-reement  and 
purchase,  it  could  not  be  held  liable  for  the  bonds,  on 
any  ground  whatever.  It  was  decided,  however,  that 
the  na.tional  banking*  act  did  not  g-ive  a  national  bank  an 
absolute  rig-ht  to  retain  bonds  coming-  into  its  posses- 
sion by  purchase  under  a  contract  which  it  was  with- 
out leg-al  authority  to  make,  and  that,  althoug-h  the 
bank  was  not  bound  to  surrender  possession  of  them 
until  reimbursed  to  the  full  amount  due  to  it,  and  mig-ht 
hold  them  as  security  for  the  return  of  the  considera- 
tion paid,  3'et  that,  when  such  amount  was  returned, 
or  tendered  back  to  it,  and  the  return  of  the  bonds  de- 
manded, its  authority  to  retain  them  no  long-er  existed, 
and,  from  the  time  of  such  demand  and  its  refusal  to 
surrender  the  bonds  to  the  vendor  or  owner,  it  became 
liable  for  their  value,  on  g-rounds  of  implied  contract, 
apart  from  the  origfinal  agfreement  under  which  it  ob- 
tained them. 

Here,  the  bank  was  found  to  have  itself  purchased 
notes  which  the  owner  had  authorized  it  to  sell  to  a 
third  party,  and,  on  gfeneral  principles  of  law,  it  w^as 
held   liable  for  their    value  as  for   a  conversion,   even 


B  CAS]  CHECKS  93 

Moore  v.  Riverside  Bank 

thoug-h  it  was  not  within  its  powers  to  sell  them  as  the 
owner's   aofent. 

We  are  of  opinion  that  the  supreme  court  of  North 
Dakota  committed  no  error  in  the  disposition  of  any 
federal  question,  and  its  judgment  is  affirmed. 

NOTE. 

National  Banks — Liability  on  Ultra  Vires  Contract. — If  a  uational 
bank  has  entered  into  a  contract  not  authorized  by  its  charter,  it  is 
held  by  the  Supreme  Court  of  the  United  States  that  the  bank  can- 
not repudiate  the  contract  and  at  the  same  time  retain  the  fruits  of 
such  contract  ;  Casey  v.  La  Societie,  etc.,  2  Woods  (U.  S.)  77.  See 
also  Norton  v.  Derry  Nat.  Bank,  61  N.  H.  589,  60  Am.  Rep.  334; 
First  Nat.  Bank  v.  Stewart,  107  U.  S.  676,  1  Am.  &  Eng.  Corp.  Cas. 
138. 

And  where  a  national  bank,  in  order  to  secure  its  indebtedness^ 
takes  possession,  by  its  cashier,  of  goods  under  a  chattel  mortgage 
and  disposes  of  them,  it  cannot  claim  immunity  from  liability  for 
any  surplus  remaining  after  payment  in  full  of  its  claims,  on  the 
ground  that  its  cashier,  being  an  officer  of  a  national  bank,  ex- 
ceeded his  powers  and  acted  ultra  vires.  Cooper  v.  First  Nat. 
Bank,  48  Kan.  5. 


Moore 


Riverside  Bank. 

{Supreme  Court  of  New  York,  Appellate   Terjit,  Jan.  2j,  i8gg.) 

Deposited  Checks — Ownership.* — Where  a  check  was  deposited  in 
a  bank  by  its  customer,  in  the  ordinary  course  of  business,  and 
credit  given  to  the  depositor  therefor  in  her  pass  book,  and  the 
evidence  as  to  whether  the  check  was  received  and  credited  as  money 
is  conflicting,  the  check  is  the  property  of  the  bank,  and  it  is  in- 
debted to  the  depositor  for  the  amount  of  the  check. 

Appeal  by  defendant  from  Tenth  district  municipal 
court,  borough  of  Manhattan.     Affirmed. 

Arg-ued  before  Beekman,  P.  J.,  and  GilderslEEVE 
and  GiEGERiCH,  JJ. 

*See  note  at  end  of  case. 


94  CHECKS  [vol  I 

Moore  v.  Riverside  Bank 

Lyman  L.  Settle,  for  appellant. 
Percival  S.  Menken,  for  respondent. 

Beekman,  p.  J.  The  plaintiff,  having-  an  account 
with  the  defendant,  deposited  with  the  bank  a  certified 
check,  which  was  received  by  it,  and  credit  g-iven  to 
the  plaintiff  therefor  in  her  pass  book.  In  the  course 
of  transmission  to  the  bank  on  which  it  was  drav/n, 
the  check  w^as  lost  ;  and  the  defendant,  taking*  the  posi- 
tion that  it  was  the  property  of  the  depositor,  and  not 
of  the  bank,  refused  to  recog-nize  the  credit  which  it 
had  g"iven  the  plaintiff  therefor  when  the  deposit  was 
made.  The  plaintiff  according"ly  brougfht  this  action 
for  the  recovery  of  the  amount  of  the  bank's  indebted- 
ness to  her,  and  judg^ment  was  awarded  in  her  favor. 

The  law  is  well  established  in  this  state  that  upon 
a  deposit  being-  made  by  a  custome'r  in  a  bank,  in  the 
ordinary  course  of  business,  of  money  or  of  drafts  or 
checks  received  and  credited  as  money,  such  money, 
drafts,  or  checks  become  the  property  of  the  bank  in 
absolute  ownership.  Bank  v.  Loyd,  90  N.  Y.  530  ; 
Cra^ne  v.  Had  lev,  99  N.  Y.  131,  1  N.  E.  537  ;  People 
V.  St.  Nicholas  Bank,  77  Hun,  159,  164,  178,  28  N.  Y. 
Supp.  407.  The  rule,  under  certain  conditions,  is  sub- 
ject to  qualification,  to  which,  however,  it  is  unneces- 
sary to  refer,  as  such  conditions  do  not  exist  here. 
There  was  some  evidence  offered  in  the  case  tending" 
to  show  that  the  check  in  question  was  not  received  by 
the  bank,  and  credited  as  money  ;  but  there  was  a  con- 
flict upon  this  point,  and  in  this  reg-ard,  as  well  as  in 
all  other  cases  where  there  was  any  issue  of  fact,  the 
question  must  be  held  to  have  been  resolved  by  the 
trial  justice  in  favor  of  the  plaintiff,  to  whom  judg-ment 
has  been  awarded.  The  case  therefore  is  one  which 
comes  directly  under  the  rule  of  law  above  stated. 
When  the  check  in  question  was  deposited,  it  became 
the  property  of  the  bank  ;  and  the  latter  thereupon 
became  indebted  to  the  plaintiff  for  its  amount,  and  the 
recovery  of  the  check  and  the  sum  due  thereon  was  a 
matter  of  concern  to  the  defendant  alone.     The  acts  of 


B  CAS]  CHECKS  95 

Note 

the  plaintiff  in  facilitating-  the  efforts  of  the  bank  in 
that  reg^ard  were  gratuitous,  and  cannot  be  used  to  her 
disadvantag-e.  The  judgment  was  right,  and  should 
be  affirmed. 

Judgment  affirmed,  with  costs.     All  concur. 


NOTE. 

Title  to  Deposit  as  between  Bank  and  General  Depositor. — The  re- 
lation between  the  bank  and  a  general  depositor  is  not  that  of  ag^ent 
and  principal,  or  of  trustee  and  cestui  que  trust,  but  is  merely  that 
of  debtor  and  creditor. 

England. — Devayues  z'.  Noble,  1  Meriv.  541  ;  Foley  v.  Hill,  2  H.  L. 
Cas.  39  ;  Crosskill  'v.  Bower,  32  Beav.  86;  Carr  v.  Carr,  1  Meriv.  541  ; 
Bishop  V.  Jersey,  2  Drew.  143;  Bellamy  v.  Majoribanks,  8  Eng-.  L.  & 
Eq.  517;  Sims  v.  Bond,  5  B.  &  Ad.  389,  27  E.  C.  L.  97;  Watts  v. 
Christie,  11  Beav.  546;  Ex  p.  Waring-,  36  L.  J.  Ch.  151. 

United  States. — In  re  Madison  Bank,  5  Biss.  (U.  S.)  515. 

Alabama. — Wray  v.  Tuskegee  Ins.  Co.,  34  Ala.  58;  Alston  z'.  State, 
92  Ala.  124;  Ex.  p.  Jones,  77  Ala.  330. 

California.— Ja.n\.n  v.  London,  etc.,  Bank,  92  Cal.  14,  27  Am.  St. 
Rep.  82. 

Colorado. — Adams  v.  Schiffer,  11  Colo.  15,  7  Am.  St.  Rep.  202  ; 
Boettcher  v.  State  Nat.  Bank,  15  Colo.  16. 

Georgia.— ^ick&  v.  Broyles,  78  Ga.  610,  6  Am.  St.  Rep.  280. 

Illinois. — Marine  Bank  v.  Chandler,  27  111.  525,  81  Am.  Dec.  249. 

Indiana. — Coffin  v.  Anderson,  4  Blackf.  (Ind.)  395  ;  McEwen  v. 
Davis,  39  Ind.  109;  McLain  v.  Wallace,  103  Ind.  562;  Lamb  v.  Morris, 
118  Ind.  179  ;  Bedford  Bank  :/.  Acoam,  125  Ind.  584,  21  Am.  St.  Rep. 
258;  Wasson  v.  Lamb,  120  Ind.  514,  16  Am.  St.  Rep.  342. 

Iowa.— 'Lowry  v.  Polk  County,  51  Iowa  50,  Zi  Am.  Rep.  114  ;  Long 
V.  Enisley,  57  Iowa  11. 

Louisiana. — Schmidt  v.  Barker,  17  La.  Ann.  261,  87  Am.  Dec.   527. 

Massachusetts. — Carr  v.  National  Security'  Bank,  107  Mass.  45,  9 
Am.  Rep.  6. 

3/icl! igan .—Ferley  v.  Muskegon  County,  32  Mich.  132.  20  Am.  Rep. 
637. 

Minnesota. — Davis  v.  Smith,  29  Minn.  201. 

Missouri. — Knecht  i'.  U.  S.  Savings  Inst.,  2  Mo.  App.  563. 

Nedraska.—StcLte  v.  Bartley,  39  Neb.  353;  State  v.  Keim,8  Neb.  63. 

A^ew  }'<?r/r.— Chapman  v.  White,  6  N.  Y.  412,  57  Am.  Dec.  464  ; 
Curtis  V.  Leavitt,  15  N.  Y.  52;  .^tna  Nat.  Bank  v.  New  York  Fourth 
Nat.  Bank,46  N.  Y.  82,  7  Am.  Rep.  314;  Jordan  ?'.  National  Shoe,  etc., 
Bank,  74  N.  Y.  467,  30  Am.  Rep.  319;  People  z'.  Mechanics',  etc.,  Sav. 
Inst.  92  N.  Y.  7,  1  Am.  &  Eng.  Corp.  Cas.  573;  Lynch  v.  Jersey  City 
First  Nat.  Bank,  107  N.  Y.  179,  1  Am.  St.  Rep.  803;  Fowler  v.  Bowery 
Sav.  Bank,  113  N.  Y.  450,  10  Am.  St.  Rep.  479;  Shipman  v.  State 
Bank,  126  N.  Y.  318,  22  Am.  St.  Rep.  821  ;  Commercial  Bank 
2'.  Hughes,  17  Wend.  (N.  Y.)  100;  People  z'.  Saint  Nicholas  Bank,  77 
Hun  (N.  Y.)   159;  Buchanan    Farm  Oil  Co.  v.  Woodman,  4  Thomp. 


%  CHECKS  [vol  r 

Doppelt  V.  Nat.  Bank  of  the  Republic 

&  C..(N.  Y.)  193,  1  Hun  (N.  Y.)  639;  Hoff  v.  Coumeight,  14  Misc. 
Rep.  (N.  Y.)  314. 

North  Carolina. — Bovden  v.  Cape  Fear  Bank,  65  N.  Car.  13;  Havens 
V.  Lathene,  75  N.  Car.  505;  Hawes  v.  Blackwell,  107  N.  Car.  196,  22 
Am.  St.  Rep.  870. 

(>///(?.— State  V.  Buttles,  3  Ohio  St.  309;  Marysville  Bank  v. 
Windisch-Mulhauser  Brewing  Co.,  50  Ohio  St.  151,  40  Am.  St.  Rep. 
660;  Treasurer  of  Fayette  County  z'.  People's  and  Drovers'  Bank 
(Ohio  1890,),  25  N.  E.  Rep.  701. 

7>,i'a<r.— Baker  v.  Kennedy,  53  Tex.  200. 

Virginia. — Robinson  v.  Gardiner,  18  Gratt.  (Va.)  509. 

Wisconsin. — Shoemaker  i'.  Hinze,  53  Wis.  116;  Henry  v.  Martin, 
88  Wis.  367. 


DoPPEIvT 


National  Bank  of  The  Republic 

{Supreme  Court  of  Illinois,  Oct.  24,  1898.) 

Deposited  Checks — Effect  of  Endorsements  in  Blank.* — Plaintiff 
deposited  with  a  banking  firm  two  checks  indorsed  by  him  in  blank, 
which  the  banking  firm,  after  endorsing  for  collection  to  its 
credit,  deposited  with  the  defendant  bank.  Held,  that  defendant 
having  no  knowledge  to  the  contrary,  was  authorized  to  act  upon 
the  banking  firm's  endorsements  of  the  checks,  and  to  proceed  to 
collect  them  and  credit  the  banking  firm's  account  with  the  proceeds. 

Evidence. — The  admission  of  evidence  to  show  the  state  of  the 
accounts  between  defendant  and  such  banking  firm  was  properlj' 
refused,  being  irrelevant. 

Appeal  by  plaintiff  from  First  district  appellate 
court.     A^rmed. 

Daniel  M.  Rothschild  {Bhnn  &  Blum,  of  counsel), 
for  appellant. 

Louden,  Estabrook  cf-  Davis,  for  appellee. 

Carter,  J.    The  appellant,  Jacob  Doppelt,  deposited 

with  the  banking-  house  of  Kopperl  &l  Co.  two  checks 

on  New  York  banks,  both  indorsed  by  him   in  blank, 

amounting-  to  81,518.48,  receiving-  credit  for 

Case  stated.  ,  .    •       1   •  11  tt-  i_ 

such  amount  in  his  pass  book.     His  account 
was  overdrawn  several  hundred  dollars  at  the  time,  and 

*See  note  at  end  of  case. 


B  CAS]  CHECKS  97 

Doppelt  V.  Nat.  Bank  of  the  Republic 

he  drew  ag^ainst  his  account  after  making-  this  deposit. 
The  banking-  firm  deposited  the  checks  with  appellee, 
indorsing-  them,  "For  collection  to  the  credit  of  Kop- 
perl  &  Co."  Appellee  gave  credit  on  its  books  to 
Kopperl  &  Co.  for  the  amount,  and  sent  the  checks  on 
to  New  York  for  collection,  and  they  were  paid  on  or 
before  February  14,  1896.  On  the  latter  day  Kopperl 
&  Co.  made  an  assig-nment  for  the  benefit  of  their 
creditors.  Appellant  filed  his  claim  with  the  assignee 
for  the  balance  due  on  his  account  with  Kopperl,  being- 
Si, 017. 58,  which  was  the  proceeds  of  these  checks  less 
the  amount  he  had  checked  out.  Subsequently  he 
brought  this  action  in  the  circuit  court  of  Cook  county 
ag-ainst  appellee,  alleg-ing-  that  Kopperl  received  these 
checks  as  his  agent  for  collection;  that  he  was  not 
indebted  to  Kopperl  at  the  time;  that  Kopperl  was  then 
insolvent,  and  had  since  made  an  assignment  for  the 
benefit  of  his  creditors  ;  that  appellee  had  received 
these  checks  from  Kopperl  for  collection,  and  duly 
collected  them  ;  and  that  by  reason  of  the  premises  the 
appellee  became  liable  to  account  to  appellant  for  the 
proceeds.  The  cause  was  heard  before  the  court  with- 
out a  jury,  and  judgment  was  entered  for  the  defendant 
below.  The  plaintiff  appealed  to  the  appellate  court, 
where  the  judgment  was  affirmed. 

Under  the  pleadings   it  became  incumbent  on  appel- 
lant   to   show   that    he    deposited   these    checks    with 
Kopperl    for    collection    only.     He    indorsed    them  in 
blank,   without   any  restrictions  whatever  ; 
and,    under    the    well- settled     rule    of    this  Deposited  checks 

,  ,  ,-  -,  1    j'ji      J       —Effector  Indorse- 

state,  he  thereby  transferred  a  good  title  to  ments  in  Biani^. 
Kopperl,  free  from  all  equities  in  his  favor, 
and  the  appellate  court  has  so  found.  Under  these 
circumstances,  appellee  could  not  know  that  he  claimed 
or  pretended  to  any  rights  in  the  paper,  and  it  was 
authorized  to  act  upon  Kopperl's  indorsement  of  the 
checks,  and  proceed  to  collect  the  same  and  credit  his 
account  with  the  proceeds.  Its  cashier  testified  that 
Kopperl  drew  against  these  checks,  and  that  his  account 
was  over-drawn,  and  when  he  failed  there  was  no  bal- 


98  CHECKS  [vol  I 

Note 

ance  to  his  credit.  All  the  facts  having"  been  found  by 
the  appellate  court  ag-ainst  appellant,  and  the  judgrnent 
of  the  court  being  in  accord  with  the  law  on  such  facts, 
there  is  no  question  left,  affecting-  the  merits  of  the 
case,  for  us  to  pass  upon. 

Exceptions   were  taken   to  the  refusal   of  the  trial 

court  to  admit  evidence  that  appellee  held  collateral  to 

secure  it  for  Kopperl's    indebtedness.     The  evidence 

was  properly  refused,  as  wholly  irrelevant 

tiVidcncP  1.-1  ^  ^  J 

to  the  question  whether  Kopperl  was  in- 
debted to  appellee.  It  had  no  knowledge  that  appell- 
ant claimed  any  interest  in  the  proceeds  of  the  checks. 
It  therefore  had  the  right  to  act  upon  his  indorsement, 
treat  the  checks  as  Kopperl's  property,  credit  his  ac- 
count, and  honor  his  drafts  accordingly.  Even  if  ap- 
pellant could,  after  having  filed  his  claim  for  the 
balance  due  from  Kopperl  against  his  estate,  have  re- 
scinded the  transaction,  and  recovered  the  checks  or 
their  proceeds  in  the  hands  of  the  assignee  (American 
Trust  &  Sav.  Bank  z\  Gueder  &  Paeschke  Mfg-.  Co., 
150  111.  336,  37  N.  E.  227),  he  clearly  had  no  such 
right  as  ag-ainst  appellee,  who  had  applied  the  pro- 
ceeds as  directed  by  Kopperl  ;  he  having-  an  unre- 
stricted indorsement.  The  judg'ment  of  the  appellate 
court  must  be  affirmed.     Judgment  affirmed. 


NOTE. 

Effect  of  Endorsement  in  Blank. — A  draft  ^Yas  iudorsed  in  blank 
and  deposited  in  a  bank  for  collection.  The  bank  indorsed  it 
"for  collection"  and  forwarded  it  to  a  second  bank.  The  second 
bank,  thereupon,  upon  the  request  of  the  first  bank  and  upon  the 
-credit  of  the  draft,  remitted  a  larg^e  amount  of  money  to  the  first 
bank.  It  was  held  that  upon  the  insolvency  of  the  first  bank  the 
original  depositor  of  the  draft  was  not  entitled  to  recover 
it  in  an  action  of  trover  against  the  second  bank.  Cody  v 
City  Nat.  Bank,  55  Mich.  379.  In  delivering  the  opinion  of 
the  court,  Campbell,  J.,  said:  "The  w4iole  case  really  hinged 
upon  whether  the  defendant  had  notice  which  should  have 
prevented  it  from  treating  the  paper  as  Rice  &  Messmore's 
[the  first  bankers]  and  advancing  them  money  upon  it.  *  *  * 
When  the  paper  came  into  defendant's  hands,  it  had  an  un- 
•iqualified     blank    indorsement    of    plaintiff^s'     which    presumptively 


B  CAS]  CHECKS  .  99 

Taft  V.  Quinsigamond  Nat.  Bank 

transferred  title  to  any  one  who  might  become  the  holder.  The  fact 
that  Rice  &  Messmore  indorsed  it  'for  collection'  had  no  tendency 
to  show  that  they  held  it  themselves  merely  as  agents  for  plaintiffs, 
or  even  received  it  from  them  directly.  The  undisputed  facts  show 
that  it  was  not  left  with  them  in  such  a  way  that  they  were  bound 
to  regard  it  themselves  as  left  for  plaintiffs'  use,  except  as  a  deposit. 
But  the  defendant  is  not  claimed  to  have  had  any  notice  outside  of  the 
paper  itself.  The  paper  came  to  defendant  with  express  directions 
to  collect  and  credit,  and  with  an  order  for  an  immediate  remittance 
of  a  large  sum,  which  nearly  exhausted  it.  This  was  not  an  excep- 
tional case,  but  was  in  the  usual  course  of  their  mutual  business." 


Taft 

V. 

Quinsigamond  Nat.  Bank. 

{Stipreme  Judicial  Court  of  Massachusetts,  Jan.  6,  i8gg.) 

Checks — Whether  Sale  or  Deposit  for  Collection.* — The  defend- 
ant bank  received  from  plaintiff"  upon  deposit  a  check  endorsed 
without  restriction  and  gave  credit  for  it  to  the  depositor  as  cash  in 
a  drawing  account,  and  while  defendant  was  trying  to  get  the 
maker  to  pay  the  check,  a  period  of  over  two  months,  plaintiff's 
checks  were  honored  by  defendant  at  times  when  his  account  would 
not  have  been  enough  to  meet  them  if  the  amount  of  the  first 
mentioned  check  had  been  charged  back  to  plaintiff'.  There  was 
no  evidence  as  to  an}'  custom  or  agreement  having  a  tendency  to 
show  that  the  bank  received  such  check  for  collection  as  plaintiff's 
agent.  Held,  that  a  finding  that  the  bank  purchased  such  check 
was  warranted  by  the  evidence. 

KxcEPTlONS  by  defendant  from  Worcester  county- 
superior  court. 

Geo.  S.   Taft,  in  pro.  per. 

F.  P.  Goidding-  and    W.  C.   Mellish,  for  defendant. 

Barker,  J.  The  action  is  said  by  the  bill  of 
exceptions  to  be  a  suit  to  recover  the  amount  of  a  check 
deposited  by  the  plaintiff  in  the  defendant  bank,  and 
credited  to  him  upon  deposit,  and  afterwards  charg-ed 
back  by  the  bank.     The  declaration  has  two  counts, — 

"See  notes  at  end  of  case. 


100  CHECKS  [vol  I 

Taft  V.  Ouiiisiganiond  Nat.  Bank 

one  for  refusal  to  pay  the  plaintiff's  check  drawn  upon 
the  defendant,  and  the  other  upon  an  account  in  which 
the  defendant  is  debited  with  the  amounts  of  the  plain- 
tiff's deposits,  and  with  the  protest  fees  on  his  dishon- 
ored check,  and  is  credited  with  the  amount  of  his 
checks  paid  by  the  defendant;  the  balance  being-  the 
amount  for  which,  with  interest,  the  court  below  found 
for  the  plaintiff.  Whether  the  bank  was  indebted  to  the 
plaintiff,  and  bound  to  honor  his  check,  depended  upon 
the  dealing's  with  refereace  to  the  check  which  he 
deposited  on  Aug-ust  2,  1897,  and  the  amount  of  which 
was  charg-ed  back  upon  the  writing-  up  of  his  pass 
book,  on  November  19,  1897. 

The  defendant  contends  that  the  finding  that  it  be- 
came at  any  time  a  purchaser  of  the  deposited  check 
was  unwarranted.  But  t-he  purchase  of  neg-otiable 
paper  by  a  bank  is  as  clearly  within  its  leg-itimate  pow- 
ers as  is  the  collection  of  such  paper  by  the  bank  as  an 
agent.  The  deposit  of  money  by  a  customer  to  his 
credit  in  a  drawing-  account,  without  more,  creates  be- 
tween the  bank  and  the  customer  the  relation  "of 
debtor  and  creditor,  not  of  agfent  and  principal."  Carr 
V.  Bank,  107  Mass.  45.  So,  when,  without  more,  a 
bank  receives  upon  deposit  a  check  indorsed  without 
restriction,  and  g-ives  credit  for  it  to  the  depositor  as 
cash  in  a  drawing-  account,  the  form  of  the  transaction 
is  consistent  with,  "and  indicates,  a  sale,  in  which,  as 
with  money  so  deposited,  the  check  becomes  the  absol- 
ute property  of  the  banker.  The  matter  may  be  reg-- 
ulated  by  statute,  as  in  the  state  of  New  York,  or  there 
may  be  g-eneral  usages  of  business  obtaining-  in  the 
locality  which  color  the  transaction.  So,  a  bank,  by 
g-eneral  notices  printed  on  its  pass  books  or  deposit 
slips,  or  otherwise  broug-ht  to  the  knowledg-e  of  its 
depositor,  or  by  ag-reement  with  the  particular  deposi- 
tor as  to  his  own  deposits,  or  by  crediting-  neg-otiable 
paper  as  paper,  and  not  as  cash,  or  by  a  particular 
contract  in  any  special  instance,  may  define  its  position 
as  that  of  ag-ent  or  purchaser.  Usually  the  cases  in 
which  a   bank   is   held  to  have  been  only  an  ag-ent  for 


B  CAS]  CHECKS  101 

Taft  V.  Ouinsigamond  Nat.  Bank 

collection  have,  as  a  controlling-  element,  evidence  of 
usag-e  or  notice  or  particular  ag-reement.  In  the  pre- 
sent case  there  was  no  evidence  of  usage  or  custom, 
nor  was  it  shown  that  the  defendant  informed  its  cus- 
tomers by  notices  upon  its  pass  books  or  deposit  slips, 
or  otherwise,  that  it  accepted  deposits  of  commercial 
paper  only  as  an  ag^ent  for  collection.  Nor  was  it 
shown  either  that  such  was  its  g-eneral  arrangement 
with  the  plaintiff,  or  that  he  understood  that  it  was 
the  arrang-ement  ordinarily  made  by  the  defendant 
with  its  depositors. 

The  conversation  between  the  plaintiff  and  the  teller 
at  the  time  when  the  deposit  was  made  is  consistent 
with  the  theory  that  the  bank  took  the  check  as  an  ab- 
solute purchaser,  relying"  for  reimbursement  upon  the 
plaintiff's  liability  as  indorser  if  the  check  should  not 
be  paid,  or  the  theory  that  the  bank  took  the  check  as 
a  conditional  purchaser,  with  the  option  of  retransfer- 
riug"  its  ownership  to  the  plaintiff  upon  ascertaining", 
within  a  reasonable  time,  that  the  check  was  not  hon- 
ored upon  presentment  to  the  drawee,  as  well  as  with 
the  defendant's  theory  that  it  took  the  check  as  an 
ag-ent  for  collection.  It  is  not  disputed  that  no  inform- 
ation was  given  by  the  bank  to  the  plaintiff  that  there 
was  difficulty  in  collecting-  the  check  until  September 
8,  1897.  From  that  time,  until  the  amount  of  the  check 
was  charg-ed  back  to  the  plaintiff  in  the  writing-  up  of 
his  pass  book  on  November  19,  1897,  there  were  fre- 
quent interviews  and  communications,  none  of  which 
are  decisive  in  favor  of  either  party,  between  the  plain- 
tiff and  the  defendant's  officers,  with  reference  to  the 
check.  It  seems  that,  upon  the  receipt  of  the  check, 
the  defendant  sent  it  to  its  Boston  correspondent,  who, 
having  no  correspondent  near  Id^dgmont,  S.  D.,  where 
the  bank  on  which  the  check  was  drawn  was  located, 
mailed  the  check  in  a  letter  directed  to  that  bank,  and 
that  the  drawee  has  never  admitted  receiving-  the  letter. 
Between  September  8tli  and  November  19th  the  plain- 
tiff knew  of  the  defendant's  efforts  to  find  the  check, 
and  to  induce  the  maker  to  pay  the  check  or  to  g-ive  a 


102  CHECKS  [vol  I 

Notes 

duplicate  of  it.  In  this  interval  the  plaintiff's  checks 
were  honored  by  the  defendant  at  times  when  his  ac- 
count would  not  have  been  enougfh  to  meet  them  if  the 
amount  of  the  missing-  check,  had  been  chargfed  back, 
and  on  October  23d  his  pass  book  was  written  up  by 
the  bank  without  charg-ino-  back  this  amount.  In  due 
course  of  mail,  the  defendant's  Boston  correspondent 
should  have  received  on  Aug-ust  21st,  at  the  latest,  an 
answer  to  its  letter  inclosing-  the  check  to  the  drawee. 
It  cannot  be  said  that  these  circumstances  show  con- 
clusively that  the  bank  took  the  deposited  check  as  an 
ag^ent  for  collection,  and  the  finding  that  it  became  a 
purchaser  must  stand.  This  finding  makes  all  ques- 
tions as  to  the  neg^ligence  of  the  defendant  or  of  its  cor- 
respondent immaterial.  The  defendant,  having-  no 
right  to  charg-e  back  the  amount  of  the  deposited  check, 
was  a  debtor  to  the  plaintiff  for  money  which  the  lat- 
ter could  recover  upon  demand,  and  the  refusal  to  rule 
that  the  plaintiff's  damages  were  merely  nominal  was 
right.  See  Winslow  v.  Bank,  171  Mass.—,  51  N.  E. 
16.     E^xceptions  overruled. 


NOTES. 

Effect  of  Crediting  Paper  when  Received  as  Cash. — The  fact  that 
the  depositor's  account  is  credited  with  the  amount  of  the  items 
taken  for  collection  does  not  of  itself  operate  to  so  transfer  the  title 
to  the  paper  ;  for,  by  the  custom  of  bankers,  the  collection  is  charged 
back  at  once  if  not  paid.  Levi  i'.  National  Bank,  5  Dill.  (U.  S.)  104  ; 
Marine  Bank  z-.  Fulton  Bank,  2  Wall.  (U.  S.)  256  ;  National  Gold 
Bank,  etc.,  Co.  z'.  McDonald,  51  Cal.  64,  21  Am.  Rep.  697  ;  Armstrong 
c'.  Boyertown  Nat.  Bank,  90  Ky.  431  ;  Manufacturers'  Nat.  Bank  v. 
Continental  Bank,  148  Mass.  553,  12  Am.  St.  Rep.  598;  Chosen  Free- 
holders v.  State  Bank,  32  N.  J.  Eq.  467  ;  Hazlett  z'.  Commercial  Nat. 
Bank,  132  Pa.  St.  118;  Rapp  v.  National  Security  Bank,  136  Pa.  St. 
426  ;  Columbia  Second  National  Bank  z'.  Cumming-s,  89  Tenn.  609, 
24  Aiu.  St.  Rep.  618. 

Title  to  Check  Deposited — Effect  of  Bank  Custom  to  Credit  as 
Cash. — A  check  was  deposited  for  collection  with  a  bank  which  sus- 
pended on  the  following  day,  its  receiver  claiming  the  uncollected 
check  as  against  the  plaintiif  by  whom  it  had  been  deposited.  It 
was  held  that  the  plaintiff  was  entitled  to  a  return  of  the  check,  and 


B  CAS]  CHECKS  103; 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

that  the  fact  that  it  had  been  the  custom  of  the  bank  to  credit  such 
checks  as  cash,  and  allow  depositors  to  draw  against  them  before 
collection,  made  no  difference,  such  a  practice  existing  merely  by 
way  of  favor.  Balbach  v.  Frelinghuysen,  15  Fed.  675.  To  the  same 
effect  as  to  the  custom  of  banks  to  credit  checks  received  as  cash, 
is  Beal  v.  Somerville,  5  U.  S.  App.  14,  where  the  authorities  are  dis- 
cussed at  length.  See  also  In  re  State  Bank,  66  Minn.  119,  45  Am. 
St.  Rep.  454. 

In  Hazlett  v.  Commercial  Nat.  Bank,  132  Pa.  St.  118,  it  was  held 
that  when  a  depositor  transmits  to  a  bank  for  credit  his  own  check 
or  draft  upon  a  third  bank,  the  bank  receiving  it  becomes  the  de- 
positor's agent  for  collection,  and  the  relation  is  not  affected  by  the 
fact  that  the  amount  of  the  draft  is  at  once  credited  to  the  depositor 
as  cash. 

The  Neiv  York  case  of  Metropolitan  Nat.  Bank  v.  Loyd,  90  N.  Y. 
530,  affirming  25  Hun  (N.  Y.)  101,  where  the  crediting  of  a  check  as 
cash  and  the  acceptance  of  such  credit  by  the  customer  was  held  to 
transfer  title  to  the  bank,  was  the  case  of  a  deposit  simply,  not  for 
the  purpose  of  collection,  and  it  v,-as  admitted  that  the  title  would 
have  remained  in  the  depositor  had  the  deposit  been  for  collection. 
In  National  Butchers',  etc..  Bank  v.  Pubbell,  117  N.  Y.  384,  15  Am.  St. 
Rep.  515,  where  the  deposit  was  specificall3'  "for  collection,"  title 
was  held  not  to  pass,  although  credit  was  given  at  once  on  reception 
and  before  collection. 


Continental  Nat.  Bank  of  New  York 
Tradesmen's  Nat.  Bank  of  New  York. 

[Supreine  Court  of  Neiv  York,  Appellate  Division,  Jan.  /j,  iSgg. 

Payment  of  Raised  Paper — Right  to  Recover.* — Where  the  drawee 
bank  paj's  a  draft  when  it  is  chargeable  with  notice  that  the  body 
of  the  draft  has  been  forged  or  altered,  it  cannot  recover  the  amount 
from  another  bank  to  which  it  is  paid,  if  the  latter  was  entitled  to 
rely  on  such  payment  when  it  became  the  holder  of  the  draft,  and  if 
such  recovery  would  result  in  injury  to  the  latter. 

Certified  Checks  from  Clearing  House — Cancellation — Payment. — 
It  was  the  custom  of  the  plaintiff'  bank,  when  certiiied  checks  were 
returned  from  the  clearing  house,  to  have  them  delivered  to  its  check 
clerk,  and,  if  they  were  found  correct  upon  comparison  with  the 
certification  book  by  such  clerk,  they  were  cancelled,  and  on  the 
next  day,  were  included  in  the    bank's  clearing  house  balance  to  be 

*See  note  at  end  of  case. 


104  CHECKS  [vol  I 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

paid  by  it  according  to  custom.  Held,  that  such  cancellation 
amounted  to  payment  of  the  draft. 

Payment  of  Raised  Paper — Negligence — Question  for  Jury. — There 
being-  evidence  tending-  to  show  that  the  plaintiff  bank  was  guilty 
of  culpable  negligence  in  receiving  a  raised  draft  through  the  clear- 
ing house  on  a  certain  date,  without  making  any  examination  of  the 
draft  or  comparing-  it  with  a  letter  of  advice  from  the  drawer,  in 
cancelling-  it  as  paid,  and  in  holding  it  for  a  certain  length  of  time, 
the  question  whether  the  payment  of  the  draft  was  such  culpable 
negligence  as  to  preclude  the  plaintiff  from  recovering  money  it  had 
paid  thereon,  should  have  been  submitted  to  the  jury. 

Same— Right  to  Recover. — If  plaintiff  was  guilty  of  such  negli- 
gence, it  would  not  be  entitled  to  recover  the  proceeds  of  such  draft 
which  had  been  paid  out  by  defendant  in  good  faith,  before  notice 
of  the  forgery,  reljdng-  upon  the  payment  of  the  draft  by  the  plain- 
tiff; but  it  could  only  recover  the  difference  between  the  amount  so 
paid  out  and  the  amount  of  the  draft. 

Appeal  by  defendant  from  trial  court.     Reversed. 

Aro-ued  before  Van  Brunt,  P.  J.,  and  Barrett, 
RuMSEY,  Patterson,  and  Ingraham,  J.  J. 

Charles  E.  RusJiinorc,  for  appellant. 
George  W.   WickerslicDii,  for  respondent. 

Ingraham,  J.  On  June  7,  1894,  the  Philadelphia 
National  Bank,  a  depositor  in  the  plaintiff  bank,  drew 
a  draft  upon  the  plaintiff,  with  the  serial  number  2,269, 

dated  on  that  day,  and  payable  to  Henry  F. 

Thompson,  for  $76.  This  draft  appears 
subsequently  to  have  been  altered  by  chauo-ino- 
the  date  from  June  7th  to  June  12th,  and  the  amount 
from  $76  to $7,660;  and,  so  altered,  it  was  presented  on 
the  13th  day  of  June,  1894,  at  the  plaintiff  bank,  and 
certified  by  its  paying-  teller.  On  June  14,  (the  following- 
day),  the  draft  was  presented  by  the  defendant  to  the 
plaintiff  at  the  New  York  Clearing-  House,  and  paid  by 
the  plaintiff  to  the  defendant.  The  plaintiff  sub- 
sequently broug^ht  this  action  to  recover  the  amount  so 
paid,  less  that  for  which  the  draft  was  originally 
drawn.  The  question  as  to  the  rig-ht  of  the  plaintiff  to 
recover  back  this  money  may  be  viewed  in  two  aspects: 
First,  with  reference  to  its  liability  on  the  certification 
of  the  draft,  on  June  13th;  and,  second,  respecting-  the 


B  CAS]  CHECKS  105 

Continental  Nat.  Bank  z'.  Tradesmen's  Nat.  Bank 

riufht  to  recover  the  amount  paid  to  the  defendant,  such 
payment  having-  been  made  on  June  14th,  and  in  the 
reg-ular  course  of  business.  In  the  view  we  have 
taken  of  this  second  aspect  of  the  question,  it  is  unneces- 
sary to  discuss  the  obligration  of  the  plaintiff  to  the  de- 
fendant, the  holder  of  the  draft,  in  consequence  of  the 
certification  on  June  13th. 

Inanaction  for  money  had  and  received,  "the  plaintiif 's 
case  depended  upon  the  question  to  which  party,  plain- 
tiif or  defendant,  does  the  money,  ex  ccquo  et  bono, 
belong-?  If  to  the  plaintiif,  it  was  because  the  facts 
created  an  indebtedness  to  him  from  defendant.  In 
this  respect  the  action  has  been  frequentl}^  stated  to 
bean  'equitable  one';  that  is,  one  depending- upon  the 
general  principles  of  equity  for  the  maintenance  of 
the  plaintiff's  claim  to  the  money.  It  is  the  most 
favorable  way  in  which  a  defendant  can  be  sued.  He 
can  be  liable  no  further  than  the  money  he  has  received, 
and  against  that  he  may  go  into  every  equitable  de- 
fence upon  the  g-eueral  issue.  He  may  claim  every 
equitable  allowance,  etc.  In  short,  he  ma_y  defend 
himself  by  everything  which  shows  that  the  plaintiff, 
ex  (vqiio  et  bono,  is  not  entitled  to  the  whole  of.  his  de- 
mand, or  any  part  of  it."  Chapman  v.  Forbes,  123 
N.  Y.  536,  26  N.  E.  3.  The  rig-ht  of  a  bank  to  recover 
the  amount  it  has  paid,  under  a  boiia  fide  mistake  of 
fact,  to  a  person  presenting  to  it  a  raised  draft,  is 
clearly  established.  The  form  of  the  action  in  which 
such  a  recovery  can  be  had  is  that  for  money  had  and 
received.  White  v.  Bank,  64  N.  Y.  319.  In  such  a 
case,  the  defendant  may,  upon  the  g-eneral  issue,  show 
any  fact  to  defeat  the  action  which  would  make  it  in- 
equitable to  allow  the  plaintiff  to  recover;  and,  if  it  ap- 
pears that  it  would  be  inequitable  to  throw  the  loss 
upon  the  person  to  whom^  such  check  or  draft  has  been 
paid,  a  recovery  will  not  be  allowed. 

As  was  said  by  Mr.  Justice  Story,  in  the  United 
States  Bank  :•.  Bank  of  Georgia,  10  Wheat.  343: 

"In  respect  to  persons  equally  innocent,  where  one  is 
bound  to    know  an  act  upon  his  knowledg-e,  and  the 


106  CHECKS  [vol  I 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

other  has  no  means  of  knowledofe,  there  seems  to  be 
no  reason  for  burdening-  the  latter  with  any  loss  in 
exoneration  of  the  former.  There  is  nothing  uncon- 
scientious in  retaining"  the  sum  received  from  the  bank 
in  payment  of  such  notes,  which  its  own  acts  have 
deliberately  assumed  to  be  genuine." 

This  rule  is  stated  by  Lord  Abinger  in  Kelly  v. 
Solari,  9  Mees.  &  W.  57,  as  follows  : 

"The  safest  rule,  however,  is  that  if  theparty  makes 
the  payment  with  full  Rnovvledg-e  of  the  facts,  althoug-h 
under  ig-norance  of  the  law,  there  being- no  fraud  on  the 
other  side,  he  cannot  recover  it  back  again.  There 
may  also  be  cases  in  which,  althoug-h  he  might,  by 
investigation,  learn  the  state  of  facts  more  accurately, 
he  declines  to  do  so,  and  chooses  to  pay  the  money 
notwithstanding.  In  that.case  there  can  be  no  doubt 
that  he  is  equally  bound." 

And  this  rule  has  been  followed  without  exception  in 
Kng-land  and  this  country.  A  drawee,  when  a  bill  or 
check  is  presented  to  him,  is  bound  to  use  such  know- 
ledg-e  as  he  has  of  any  alteration  or  defect  in  the  bill  or 
check  ;  and  if  he,  having-  knowledg-e  that  the  bill  or 
check  is.  forged,  pays  it,  he  will  not  be  allowed  to  say 
that  he  paid  it  under  a  bona  fide  mistake  of  fact.  Thus, 
it  is  settled  that  where  a  check  is  paid  on  presentation 
to  the  bank  upon  which  it  is  drawn,  and  the  name  of 
the  drawer  of  the  check  is  forged,  the  payment  was 
not  made  under  a  mistake  of  fact  which  would  justify 
a  recovery  of  the  money  paid.  The  g-round  of  this  rule 
is  that  the  drawee  is  charg-eable  with  knowledge  of  the 
sig-nature  of  the  drawer. 

In  Daniel  on  Negotiable  Instruments  (section  1362), 
it  is  said  : 

"In  all  the  cases  which  hold  the  drawee  absolutel)^ 
estopped  by  acceptance  or  payment  from  denying-  the 
genuineness  of  the  drawer's  name,  the  loss  is  thrown 
upon  him,  on  the  ground  of  neglig"ence  on  his  part  in 
accepting-  or  paying  until  he  has  ascertained  the  bill  to 
be  genuine." 


B  CAS]  CHECKS  107 

Continental  Nat.  Bank  i'.  Tradesmen's  Nat.  Bank 

And  Judge  RugglES,  in  Bank  of  Commerce  v. 
Union  Bank,  3  N.  Y.  234,  says  : 

"This  rule  is  founded  on  the  supposed  neg-lig-enceof 
the  drawee  in  failing-,  by  an  examination  of  the  signa- 
ture when  the  bill  is  presented,  to  detect  the  forgery, 
and  refuse  payment.  The  drawee  is  supposed  to  know 
the  handwriting-  of  the  drawer,  who  is  usually  his 
customer  or  correspondent.  As  between  him,  therefore, 
and  an  innocent  holder,  the  payor,  from  this  imputed 
negligence,  must  bear  the  loss." 

Thus,  where  the  law  imputes  to  the  drawee  of  a 
check  or  draft  knowledge  of  the  signature  of  the 
drawer,  the  payment  of  the  check  or  draft  by  the 
drawee  prevents  him  from  recovering-  back  the  money, 
as  the  drawee  was  neglig-ent  in  not  employing"  the 
knowledge  imputed  to  him  ;  and,  as  between  the 
drawee  and  a  bo}ia  fide  holder  of  the  check  or  bill  for 
value,  such  bona  fide  holder  will  be  entitled  to  retain 
the  proceeds  in  his  own  hands.  But  where  the  forgfery 
is  not  in  counterfeiting"  the  name  of  the  drawer,  but  in 
altering"  the  body  of  the  bill,  the  drawee  is  not  pre- 
sumed to  know  the  handwriting"  of  the  body  of  the  bill, 
and  is  not  chargeable  with  knowledge  of  the  alteration 
in  the  bill  itself  so  long"  as  the  signature  of  the  drawer 
is  g-enuine  ;  and,  where  he  has  paid  such  an  amount 
without  notice  that  the  bill  has  been  raised  or  altered, 
he  is  entitled  to  recover  ;  for,  as  Judge  Ruggees  says 
in  Bank  of  Commerce  v.  Union  Bank,  supra  : 

"To  require  the  drawee  to  know  the  handwriting"  of 
the  residue  of  the  bill  is  unreasonable.  It  would,  in 
most  cases,  be  requiring"  an  impossibility.  Such  a  rule 
would  be  not  only  arbitrary  and  rigforous,  but  unjust. 
The  drawee  would  undoubtedlv  be  answerable  for 
negligence  in  paying"  an  altered  bill,  if  the  alteration 
were  manifest  on  its  face." 

And  Judge  Rapallo,  in  National  Bank  of  Com- 
merce V.  National  Mechanics'  Banking  Ass'n,  55  N.  Y. 
216,  applying  the  same  principle,  says  : 

"The  bank  was  not  bound  to  know  the  handwriting 
or  genuineness  of  the  filling"  up  of  the  check.     It   was 


108  CHECKS  [vol  I 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

leg-ally  concluded  only  as  to  the  sigfaature  of  the  drawer 
and  its  own  certification.  •»  ■«•  -s-  jf  ^j^g  defendant  had 
shown  that  it  had  suffered  loss  in  consequence  of  the 
mistake  committed  by  the  plaintiff, — as,  for  instance, 
if,  in  consequence  of  the  recog-nition  by  the  plaintiff  of 
the. check  in  question,  the  defendant  had  paid  out 
money  to  its  fraudulent  depositor, — then,  clearly,  to 
the  extent  of  the  loss  thus  sustained,  the  plaintiff 
should  be  responsible." 

The  gfround  of  this  distinction  between  a  case  where 
the  siofnature  of  the  drawer  of  the  bill  is  forg-ed  and 
one  where  the  signature  of  the  drawer  is  g'enuine,  but 
the  body  of  the  bill  has  been  chang-ed,  is  apparent. 
The  law  imputes  to  the  drawee  a  knowledge  of  the 
drawer's  signature  ;  and,  where  he  pays  the  bill  to 
which  the  name  of  the  drawer  has  been  forged,  he  is 
o-uilty  of  neg-lig-ence  is  n"ot  applying  the  knowledge 
imputed  to  him,  and  he  will  not  be  permitted  to  recover 
the  proceeds  of  the  bill  from   a  bona  fide  holder.     On 

the  same  reasoning-,  when  the  body  of  the 
Payment  of  Raised  bill  has  bceu  forgfcd  or  altered,  and  the 
Recover.  drawee   has   knowledge  thereor   when  it   is 

presented  for  payment,  and  with  such  knowl- 
edge pays  it,  he  has  not  paid  it  under  a  bojia  fide 
mistake  of  fact,  which  would  allow  him  to  recover  the 
money  thus  paid  from  the  person  to  whom  it  has  been 
paid,  and  who  has  relied  on  suchpa^^ment  to  his  injury. 
If  the  drawee  has  such  knowledg-e,  he  is  bound  to  apply 
it  ;  and  if  he  fails  to  do  so,  and  pays  the  bill,  he  is  as 
guilty  of  negligence  as  in  the  case  where  the  knowledge 
is  imputed  to  him.  In  either  case  he  cannot  recover, 
because  he  has  been  neg^ligent  in  appl3'ing'  either  the 
knowledge  which  he  actually  has,  or  that  which  the 
law  ascribes  to  him  ;  and  such  neg-lig-ence  prevents  a 
recover}'  of  the  money  paid. 

The  rule  is  recog-nized  in  the  cases  before  cited,  but 
is  very  clearl}^  stated  in  Clews  v.  Association  (which 
was  three  times  before  the  court  of  appeals)  89  N.  Y. 
422  ;  105  N.  Y.  401,  11  N.  E.  814  ;  114  N.  Y.  70,  20  N. 
K.  852.     Upon  the  first  appeal,  when  there  had  been  a 


B  CAS]  CHECKS  109 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

judg-ment  for  the  plaintiff,  Judge  Eare,  iu  discussing" 
the  liability  of  the  certifyingf  bank,  said  : 

"When*  *  *  a  bank  iias  thus  certified  a  raised  check 
bv  mistake,  and  subsequently  pays  the  money  thereon, 
without  any  culpable  neglig-ence  on  its  part,  it  can 
recover  the  amount  thus  paid  as  money  paid  by  mis- 
take." 

In  that  case  a  check  had  been  certified  by  the  de- 
fendant, and  after  such  certification  it  had  been  altered 
so  as  to  call  for  a  larg-er  amount  than  that  for  which  it 
had  been  drawn  and  certified.  It  was  offered  to  the 
plaintiffs  (purporting"  to  be  drawn  for  $2,540)  in  pay- 
ment for  82,500  in  g-overnment  bonds.  Before  accept- 
ing- it,  the  plaintiffs  sent  it  by  their  messeng'er  to  the 
drawee  ;  and  it  was  presented  to  the  paying-  teller  with 
the  statement  that  Henry  Clews  wanted  to  know  if  the 
certification  was  gfood.  The  teller  looked  at  it,  and 
answered,  "Yes."  Relying-  upon  that  statement,  the 
plaintiffs  accepted  the  check  in  payment  for  the  bonds, 
and  delivered  them.  The  bank,  17  days  before  the 
inquiry  was  made  of  its  teller,  had  received  notice  from 
the  drawer  of  the  check  that  it  had  been  lost,  and  pay- 
ment of  the  orig-inal  which  the  defendant  had  certified 
was  stopped.  Upon  the  second  appeal  (105  N,  Y.  401, 
11  N.  E).  814),  the  court  held  that  it  was  a  question  for 
the  jury  to  say  whether  it  was  culpable  neg-lig-ence  to 
answer  the  question  without  recourse  to  the  certifica- 
tion book  and  the  bookof  stop  payments,  which  referred 
to  the  draft  in  question  by  its  number,  and  would  have 
disclosed  the  fraud;  and,  upon  a  subsequent  trial,  that 
question  was  submitted  to  the  jury,  and  answered  in 
the  affirmative,  and  the  judgement  in  favor  of  the  plain- 
tiffs for  the  amount  of  the  draft  as  raised  was  affirmed 
by  the  court  of  appeals.  114  N.  Y.  70,  20  N.  E.  852. 
See,  also,  Gloucester  Bank  v.  Salem  Bank,  17  Mass. 
41,  where  the  court  says  : 

"In  all  such  cases,  the  just  and  sound  principle  of 
decision  has  been  that,  if  the  loss  can  be  traced  to  the 
fault  or  neg-lig-ence  of  either  party,  it  shall  be  fixed 
upon  him." 


110  CHECKS  [vol  I 

Continental  Nat.  Bank  i'.  Tradesmen's  Nat.  Bank 

We  have  thus  the  g-eneral  rule  that,  to  entitle  the 
drawee  of  a  check  to  recover  the  amount  it  has  paid 
upon  a  raised  check,  the  payment  must  have  been  made 
without  culpable  neg^lig'ence,  and  that  where  the 
drawee  has  received  notice  that  a  check  has  been  lost, 
and  payment  of  it  stopped,  or  facts  from  which  it 
would  appear  that  it  had  been  raised,  and  pays  the 
check  without  examination,  and  under  such  circum- 
stances as  show  culpable  negflig-ence,  the  drawee  does 
not  make  payment  under  a  mistake  of  fact  which  would 
allow  a  recovery  ag-ainst  a  bo)ia  fide  holder  who  has 
parted  with  or  used  the  amount,  rehnng"  on  the  pay- 
ment on  the  check  by  the  drawee. 

The  facts  relied  upon  by  the  defendant  to  show  cul- 
pable neglig-ence  of  the  plaintiff  in  paying-  this  draft 
are  not  in  dispute.  The  Philadelphia  National  Bank, 
the  drawer  of  the  draft  in  question,  had  what  is  known 
as  an  active  account  with  the  plaintiff  bank,  and  had 
occasion  to  draw  drafts  upon  it  almost  daily.  At  the 
close  of  each  day's  business,  the  Philadelphia  Bank 
invariably  notified  the  plaintiff  of  all  drafts  it  had 
drawn  upon  the  plaintiff  bank  on  that  day.  The  offi- 
cers of  both  the  plaintiff  and  the  Philadelphia  Bank 
testified  that  there  was  never  any  deviation  from  this 
rule.  These  notifications  were  in  the  form  of  letters 
of  advice,  as  follows:  "The  following  described  drafts 
have  this  day  been  drawn  by  the  Philadelphia  National 
Bank  upon  the  Continental  Bank,  N.  Y."  Then  fol- 
lowed a  list,  with  the  serial  number  of  each  draft,  the 
name  of  the  payee,  and  the  amount  thereof.  These 
letters  of  advice  were  received  by  the  plaintiff  bank 
on  the  morning-  following-  the  day  on  which  they  were 
\vritten,  were  delivered  to  the  plaintiff's  bookkeeper  in 
charg-e  of  the  account  of  the  Philadelphia  Bank,  and 
were  kept  by  him  on  a  clip  upon  his  desk.  As  each 
draft  specified  in  the  letter  of  advice  was  certified  or 
paid,  the  bookkeeper  checked  the  letter  of  advice, 
opposite  such  draft.  Thus,  the  officers  of  the  bank 
had  information,  when  each  draft  was  presented,  which 
would  enable  them   to   ascertain   its  g-enuineness,  and 


B  CAS]  CHECKS  111 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

see  if  an  alteration  had  been  made  in  it.  Each  draft 
could  be  identified  by  its  number  and  the  name  of  the 
payee,  and  the  plaintiff  had  notice  of  the  amount  for 
which  each  draft    was  drawn. 

On  June  7,  1894,  the  Philadelphia  Bank  drew  upon 
the  plaintiff  a  draft,  No.  2,269,  payable  to  Henry  F. 
Thompson,  for  S76,  and  sent  it  to  Thompson,  at  Bal- 
timore, by  mail,  and  on  the  same  day  sent  the  plaintiff 
a  letter  of  advice  statino-  that  it  had  drawn  a  draft  upon 
the  plaintiff,  No.  2,269,  in  favor  of  Henry  F.  Thomp- 
son, for  $76.  This  letter  was  received  by  the  plain- 
tiff on  the  morning-  of  June  8,  1894,  and  was  at  that 
time  delivered  to  the  bookkeeper  having-  charg-e  of  the 
account  of  the  Philadelphia  Bank,  and  placed  by  him 
upon  the  clip  at  his  desk.  That  letter  remained  con- 
tinuously before  the  bookkeeper  from  the  morning  of 
June  8th  until  it  was  taken  by  him  from  the  clip,  on 
the  afternoon  of  June  14th.  It  contained  a  notifica- 
tion of  all  the  drafts  which  had  been  drawn  on  June 
7th,  that  in  question  being-  the  first  drawn  on  that  day. 
There  were  in  all  eight  of  such  drafts,  the  numbers 
running-  from  2,269  to  2,276,  inclusive.  On  each  of 
the  following-  days  on  which  drafts  were  drawn,  the 
Philadelphia  Bank  sent  to  the  plaintiff  a  letter  of  ad- 
vice of  the  drafts  drawn  on  the  day  the  letter  was  sent. 
On  June  12th,  advice  was  given  to  the  plaintiff  of  the 
drawing  of  10  drafts,  the  serial  numbers  running-  from 
2,287  to  2,297,  inclusive;  and,  by  a  separate  letter, 
notice  was  given  of  a  draft.  No.  2,302,  drawn  on  the 
same  day;  and  on  June  13th  the  Philadelphia  Bank 
advised  the  plaintiff  of  its  drawing  one  draft  on  that 
day  with  the  serial  number  2,302.  These  letters  were, 
as  usual,  received  upon  the  day  subsequent  to  their 
date. 

The  plaintiff  had,  therefore,  on  the  morning  of  June 
13tli,  notice  that  draft  No.  2,269  had  been  drawn  in 
favor  of  Henry  F.  Thompson,  for  S76,  and  that 
on  June  12th  drafts  had  been  drawn  numbered 
2,287  to  2,297,  inclusive,  and  one  numbered  2,302. 
On    the    morning    of  June    13,   1892,    a    draft   drawn 


112  CHECKS  [vol  I 

Continental  Nat.  Bank  i'.  Tradesmen's  Nat.  Bank 

by  the  Philadelphia  Bank,  numbered  2,269,  which 
purported  to  be  dated  June  12,  1894,  payable  to 
the  order  of  Henry  F.  Thompson,  for  S7,660, 
was  presented  to  the  payino"  teller  for  certifica- 
tion. This  draft  bore  the  same  number,  and  was  payable  ' 
to  the  order  of  the  same  person,  as  the  one  which  the 
plaintiff  had  been  notified  had  been  drawn  on  June  7th, 
for  S76,  The  date,  however,  was  chaug-ed  to  June 
12th,  and  the  amount  chang-ed  toS7,660,  instead  of  $76. 
When  this  draft  was  presented  to  the  paying-  teller  of 
the  plaintiff  bank  for  certification,  he  took  it  to  the 
bookkeeper  who  had  chargfe  of  the  Philadelphia 
Bank's  account,  and  who  had  before  him  upon  the  clip 
on  his  desk  the  letters  of  advice  from  the  Philadelphia 
Bank  ;  and  holdiug-  this  draft  in  front  of  the  book- 
keeper, so  that  he  could  see  all  parts  of  it,  including- 
the  serial  number,  he  said  to  the  bookkeeper,  "Is  this 
check  all  rig'ht?"  The  bookkeeper  said  it  was. 
Whether  or  not  he  examined  the  letters  of  advice  from 
the  Philadelphia  Bank  at  that  time, or  answered  without 
such  examination,  does  not  appear,  but  he  did  not  make 
any  check  on  the  letter  of  advice.  The  paying-  teller 
then  went  back  to  his  desk,  and  certified  the  draft, 
entering-  its  amount  in  his  certification  book,  but  omitted 
to  enter  in  his  book,  as  w^as  his  custom,  the  serial  num- 
ber of  the  draft,  and  delivered  it  to  the  person  present- 
ing- it  for  certification.  After  this  draft  had  been  thus 
certified,  the  certification  book  was  delivered  to  the 
bookkeeper,  and  from  that  he  charg-ed  up  as  ag-ainst 
the  depositor  the  amount  of  the  draft  so  certified  in  the 
depositor's  account.  The  evidence  is  that  instructions 
issued  by  the  plaintiff  to  the  paying-  teller  were,  al- 
ways to  inquire  of  the  bookkeeper  before  certifying-  a 
check;  that  it  was  the  duty  of  the  bookkeeper  to  ascer- 
tain whether  or  not  the  account  was  g-ood  for  the  check 
presented  ;  and  that,  where  letters  of  advice  were  re- 
ceived, it  was  the  duty  of  the  bookkeeper  to  consult 
such  letters  before  informing-  the  paying-  teller  in  re- 
gard to  the  check.  The  bookkeeper  testified  that 
when   he   entered  this  draft,  on  the  afternoon  of  June 


II 


B  CAS]  CHECKS  113 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

13th,  he  noticed  that  the  paying-  teller  had  neg-lected  to 
enter  the  serial  number  in  the  certification  book  ;  that 
at  that  time  he  also  knew  and  had  in  mind  the  fact  that 
the  plaintiff  had  not  received  any  letter  of  advice  from 
the  Philadelphia  Bank  that  a  draft  for  the  amount 
called  for  by  this  certified  draft  had  been  drawn.  Thus, 
his  attention  was  expressly  called  to  the  fact  that  a 
check  for  $7,660,  which  had  been  submitted  to  him  for 
inspection,  had  been  certified  by  the  teller,  when  no 
advice  had  been  received  from  the  Philadelphia  Bank 
of  the  drawing-  of  such  a  draft,  he  having"  before  him 
the  letters  of  advice  from  the  Philadelphia  Bank  of  the 
drafts  which  it  had  drawn  upon  the  plaintiff  on  June 
12th  (the  date  of  the  draft  in  question),  tog-ether  with 
notice  of  all  drafts  drawn  prior  to  that  time,  with  the 
serial  number  of  all  drafts  drawn,  and  notice  that  a 
draft  with  this  same  number  had  been  drawn  to  this 
payee  for  S76.  He  noticed  that  the  teller  in  certifying* 
this  draft,  of  which  the  plaintiff  had  no  advice,  had 
omitted  to  put  in  his  certification  book  the  number  of 
the  draft,  which  was,  as  testified  to,  an  unusual  occur- 
rence. These  facts  thus  broug-ht  to  the  attention  of  the 
bookkeeper  on  the  afternoon  of  June  13th,  he  then 
communicated  to  the  g-eneral  bookkeeper  of  the  bank. 
Thus,  the  officers  of  the  bank  had  notice  of  these  facts 
which  had  been  specifically  called  to  their  attention  on  the 
afternoon  of  June  13th.  It  also  appears  that  the  drafts 
drawn  and  certified  under  these  circumstances  are 
almost  invariably  paid  throug-h  the  New  York  Clearing- 
House,  and  that,  in  the  usual  course  of  business,  that 
draft  would  be  presented  at  the  clearing-  house  for 
payment  on  the  following- morning-.  These  facts  relat- 
ing- to  this  particular  draft  thus  certified  being-  broug-ht 
to  the  attention  of  the  plaintiff's  officers,  no  further  in- 
quiry was  made  by  the  plaintiff  bank  concerning-  it  ; 
altlioug-h  it  appears  that  on  the  next  day,  in  the  after- 
noon, when  the  cashier's  attention  v/as  called  to  the 
discrepancy  between  the  draft  and  the  letter  of  advice, 
the  Philadelphia  Bank  was  communicated  with  by 
telephone,  and  within  a  very  few  moments  information 

B  CAS— 8 


114  CHECKS  [vol  1 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

was  given  to  the  plaintiff  that  no  such  draft  had  been 
drawn.  If,  on  the  afternoon  of  June  13th,  the  officers 
of  the  bank  had  communicated  by  telephone  with  the 
plaintiff  bank,  as  they  did  on  the  afternoon  of  June  14th, 
we  must  assume  that  no  difficulty  would  have  been  ex- 
perienced in  obtaining-  at  once  the  information  which 
they  obtained  on  the  afternoon  of  June  14th,  viz.  that 
no  draft  for  this  amount  had  been  drawn.  No  such 
precaution,  however,  was  taken.  The  officers  of  the 
bank  simply  did  nothing-. 

On  June  13th, after  the  draft  had  been  certified,  it  was 
deposited  with  the  defendant  bank  by  Thompson,  the 
payee,  who  had  an  account  in  that  bank,  and  the  amount 
was  then  placed  to  his  credit.  He  made  no  effort 
to  draw  any  part  of  the  nnoney  on  June  13th,  and  on 
the  morning-  of  June  14th  the  defendant  bank  presented 
this  draft,  so  certified  by  the  plaintiff,  to  the  plaintiff 
for  payment,  through  the  clearing-  house  ;  and  the 
draft  was  duly  paid  by  the  plaintiff.  The  method 
of  payment  throug"h  the  clearing"  house  is  described  by 
the  plaintiff's  cashier.  Restated  that,  under  the  rules 
of  the  clearing-  house,  the  day  after  a  check  or  draft  is 
deposited  with  a  member  of  the  clearing  house,  that 
draft  or  check,  tog-ether  with  all  others  drawn  upon 
the  same  bank,  are  sent  to  the  clearing-  house,  and  they 
are  there  exchang-ed  for  checks  or  drafts  drawn  by 
other  banks  upon  the  bank  sending-  in  these  drafts. 
That  exchang-e  process  is  done  at  ten  o'clock  in  the 
morning-,  at  the  clearing-  house.  "If  the  total  amount  of 
checks  drawn  by  other  banks  ag-ainst  our  bank  exceed  the 
total  amount  which  our  bank  has  drawn  ag-ainst  other 
l)anks,  then  we  send  the  overplus  to  the  clearing-  house, 
and  they  make  the  payments,  distributed,  as  it 
may  be  due,  to  the  other  banks.  It  is  a  rule  of  the 
clearing-  house  that  the  debit  bank  must  pay  in  before 
half  past  one, and  the  credit  bank  cannot  receive  its  credit 
until  after  half  past  one,  probably  two,  o'clock."  On 
June  14th,  the  plaintiff  bank  sent  to  the  defendant  bank 
checks  and  drafts  drawn  upon  it  amounting-  to  $505.72; 
and  the  defendant  bank  sent  to  the  plaintiff  bank  checks 


I 


B  CAS]  CHECKS  115 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

and  drafts  drawn  upon  itag-g^reg^ating-  $8,053.88,  which 
included  this  certified  draft  in  question,  for  S7,660  ; 
and  on  that  day  the  credit  balance  of  the  defendant  bank 
at  the  clearing-  house  amounted  to  upward  of  S18,000, 
which  included  the  amount  of  this  draft  in  question. 
Thus,  on  the  morning-  of  June  14th,  at  10  o'clock,  this 
draft  (which,  under  the  rules  of  the  clearing-  house, 
would  be  then  presented  if  deposited  on  the  preceding 
day  with  a  bank  which  cleared  through  the  clearing- 
house) was  presented  at  the  clearing-  house  to  the  repre- 
sentative of  the  plaintiff  bank  by  the  representative  of  the 
defendant  bank,  was  accepted  by  the  plaintiff's  repre- 
sentative there  without  objection,  and  returned  to  the 
plaintiff,  arriving-  there,  as  testified  to,  from  about  20 
minutes  after,  to  half  past,  10  o'clock. 

It  is  the  custom  of  the  plaintiff  bank,  when  certified 
checks  are  returned  from  the  clearing-  house,  to  have 
them  delivered  to  the  check  clerk,  and  he  has  charg-e  of 
them  during-  that  day.  The  check  clerk 
compares  these  certified  checks  with  the  JroiJ^citaHnp' 
entries  in  the  certification  book  which  is  fi*ul7a'^''ment*" 
kept  by  the  paying-  teller  ;  and  if,  upon  such 
comparison,  they  are  found  correct,  they  are  then  can- 
celed by  the  bank,  and  placed  in  a  receptacle  or  drawer 
provided  for  certified  checks.  When  this  draft  in 
question  was  received  by  the  check  clerk  of  the  plaintiff 
bank,  on  the  morning-  of  June  14th  from  the  clearing- 
house, it  was  by  him  canceled  as  paid,  and  placed  in 
that  receptacle,  and  the  credit  balance  due  to  the 
defendant  bank  from  the  clearing-  house  was  paid  by 
the  clearing  house.  There  can  be  no  doubt,  I  think, 
that  when  this  draft  was  examined  and  found  correct 
by  the  check  clerk,  and  by  him  canceled,  it  was  then 
paid.  The  evidence  is  that  this  g-enerally  took  place 
some  time  between  11  and  1  o'clock.  The  plaintiff, 
through  its  officers,  had  received  this  draft  from  the 
defendant  bank,  and  had  made  the  examination  which 
they  required  as  to  certified  checks  to  ascertain  its  cor- 
rectness by  a  comparison  with  the  certification  book. 
That  being-  found  correct,  they  had  canceled  the  draft. 


116  CHECKS  [vol  I 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

and  placed  it  in  the  receptacle  in  which  such  drafts 
were  kept.  Nothing-  more  remained  to  be  done  with 
it,  except  to  return  it  to  drawer  when  the  account  of 
the  Philadelphia  Bank  with  the  plaintiff  was  written 
up.  With  knowledg-e  of  the  facts  before  stated,  the 
plaintiff  had  paid  the  draft,  without  comparing"  it  with 
the  letters  of  advice,  or  making"  any  examination  as  to 
its  genuineness,  when  any  comparison  with  the  letters 
of  advice  on  the  morning"  it  vi^as  received  would  have 
at  once  disclosed  the  forg-ery. 

The  defendant  requested  the  court  to  submit  to  the 
jury  the  question   whether  the  payment  of  this  draft 

by  the  plaintiff,  under  the  circumstances, 
Pap™-V/?ngeiice  ^as  culpable  neglig-ence,  so  as  to  preclude 
-(^(uestion  for       the    plaintiff    from    recovering"    more    than 

the  balance  of  the'depositor's  account  with 
the  defendant  bank  at  the  time  that  notice  of  the  for- 
g-er}^  was  g-iven  to  the  defendant.  The  court  denied 
that  motion,  and  directed  a  verdict  for  the  plain- 
tiff. We  think  there  was,  at  least,  a  question  for 
the  jury  to  determine  whether  the  bank  was  cul- 
pably    negligent    in   paying     this    check  ;  and    if  the 

jury  should  find  that  it  was  so  neg^ligent, 
£7^'^""'  '*     under  the  rule  before  stated,   the   plaintiff 

could  not  recover  the  proceeds  of  this  draft, 
which  had  been  actually  and  in  g"Ood  faith  paid  out  by 
the  defendant  before  notice  of  the  forgery,  relying  upon 
the  payment  of  the  draft  by  the  plaintiff.  This  draft, 
as  before  stated,  was  deposited  with  the  defendant  on 
June  13th,  after  its  certification  by  the  plaintiff .  Under 
the  rules  of  the  clearing"  house,  of  which  both  these 
banks  are  members,  it  was  delivered  to  the  plaintiff  on 
the  morning"  of  June  14th,  and  was  received  and  paid 
by  it.  Under  the  constitution  and  rules  of  the  clear- 
ing house,  iu  evidence,  it  is  provided  that  "all  checks, 
drafts,  notes,  or  other  items  in  the  exchang"es,  returned 
as  'not  good'  or  niissent,  shall  be  returned  the  same 
day  directly  to  the  bank  from  which  they  were  re- 
ceived." By  rule  1  it  is  provided  that  "return  of 
checks,  drafts,  &c.,  for  informality,  not  good,  missent. 


B  CAS]  CHECKS  117 

Continental  Nat.  Bank  i'.  Tradesmen's  Nat.  Bank 

guaranty  of  indorsement,  or  for  any  other  cause, should 
be  made  before  three  o'clock  of  the  same  day." 

On  the  afternoon  of  June  14th,  some  time  after  2 
o'clock,  the  depositor  who  had  deposited  this  draft 
with  the  defendant  appeared  with  three  checks,  ag-- 
g-regating- $7,025,  for  which  he  demanded  cash.  The 
paying-  teller  of  the  defendant  bank  examined  his  ac- 
count, and  found  that  he  had  made  a  deposit  on  the  day 
before  to  an  amount  which  would  make  his  account 
g-ood  for  this  $7,025.  He  examined  the  deposit  slip 
with  which  that  deposit  was  made,  and  saw  that  the 
deposit  was  of  a  check  certified  by  the  plaintiff  bank. 
That  check  having-  been  sent  to  the  clearing-  house  in 
the  morning-,  and  no  notice  having-  been  received  to  the 
contrary,  it  was  assumed  to  have  been  paid  by  the  plain- 
tiff bank  ;  and  the  paying-  teller  paid  the  check  of  the 
depositor,  leaving-  a  balance  of  account  to  the  credit  of 
the  depositor  of  $660.  The  teller  swears  positively 
that  these  payments  to  Thompson  were  made  between 
2  and  3  o'clock,  after  the  check  had  been  paid  by  the 
plaintiff  bank,  before  the  forg-ery  had  been  actually 
discovered  by  the  plaintiff,  and  before  any  notice  had 
been  g-iven  to  the  defendant  of  any  irreg-ularity  in  the 
check.  This  bring's  the  case  within  the  illustration 
stated  by  Judge  Rapaleo  in  National  Bank  of  Com- 
merce V.  National  Mechanics'   Banking-  Ass'n,  supra: 

"If  the  defendant  had  shown  that  it  had  suffered  loss 
in  consequence  of  the  mistake  committed  b}^  the  plain- 
tiff, as,  for  instance,  if,  in  consequence  of  the  recog-ni- 
tion  by  the  plaintiff  of  the  check  in  question,  the 
defendant  had  paid  out  money  to  its  fraudulent  deposi- 
tor, then,  clearly,  to  the  extent  of  the  loss  thus  sus- 
tained, the  plaintiff  should  be  responsible." 

Here,  if  the  jury  should  find  that  it  was  culpable 
neg-lig-ence  on  the  part  of  the  plaintiff,  with  the  facts 
which  had  been  called  to  its  attention  on  the  afternoon 
of  June  13th,  to  receive  the  draft  through  the  clearing- 
house on  June  14th,  without  making-  any  examination 
of  the  draft  or  comparing-  it  with  the  letter  of  advice 
from  the  drawer,  to  cancel  it  as  paid,  and  hold  it  until 


118  CHECKS  [vol  I 

Continental  Nat.  Bank  v.  Tradesmen's  Nat.  Bank 

after  2  o'clock  ;  and  that  the  defendant  had  paid  out 
this  money,  relying-  upon  the  recog*nition  of  the  draft 
by  the  plaintiff,  its  payment  on  the  morning-  of  June 
14th,  and  its  retention  in  the  plaintiff's  hands  without, 
objection, — then,  to  the  extent  of  the  loss  sustained  by 
the  defendant  in  paying-  the  draft  to  its  fraudulent  de- 
positor, the  plaintiff  would  be  responsible. 

On  the  afternoon  of  June  14th,  some  time  after  4 
o'clock,  the  bookkeeper  of  the  plaintiff  in  charg-e  of 
the  Philadelphia  Bank,  having-  in  mind  the  facts  which 
had  been  called  to  his  attention  the  day  before,  went  to 
the  receptacle  in  which  certified  checks  were  kept,  and 
g-ot  out  this  draft.  On  comparing-  it  with  the  letters 
of  advice  from  the  Philadelphia  Bank,  he  at  once 
noticed  that  there  was  a -discrepancy  in  the  amount  of 
this  draft,  and,  taking  the  draft  and  the  letter  of  ad- 
vice, he  broug-ht  them  to  the  attention  of  the  cashier  of 
the  plaintiff  bank.  The  cashier  at  once  communicated 
with  the  Philadelphia  Bank,  as  before  stated,  by  tele- 
phone, and  received  information  which  disclosed  the 
forgery.  He  at  once  went  to  the  defendant  bank,  ar- 
riving- there  about  5  o'clock  in  the  afternoon,  when  the 
principal  officers  of  the  bank  had  left  the  banking- 
house;  and  subsequently,  in  the  evening-  of  the  same 
day,  he  notified  the  cashier  of  the  defendant  bank. 
Efforts  were  made  the  next  morning-  to  arrest  the  per- 
son who  had  obtained  the  money  from  the  defendant 
bank,  but  without  success.  On  the  morning*  of  June 
15th,  this  depositor  attempted  to  cash  another  check 
at  the  defendant  bank,  and  also  offered  for  deposit  an- 
other draft  drawn  on  another  bank  in  New  York.  It 
thus  appeared  that  he  was  in  New  York  on  the  morn- 
ing- of  June  15th,  but  he  subsequently  disappeared,  and 
no  trace  of  him  could  be  found.  Thus,  the  plaintiff 
did  not  discover  the  forg-ery  until  about  half  past  4 
o'clock  on  the  afternoon  of  June  14th,  although  it  is 
apparent  that  if  any  examination  of  this  draft  had  been 
made  at  any  time  before  2  o'clock,  and  the  defendant 
notified,  the  mone}^  would  not  have  been  paid  to  the 
forg-er,  and  no  loss  would  have  been  sustained. 


B  CAS]  CHECKS  119 

Note 

Under  the  rules  and  constitution  of  the  clearino- 
house,  as  before  stated,  the  plaintiff  was  required  to 
return  the  draft  before  3  o'clock  on  the  day  on  which 
it  was  presented.  The  leg^al  situation  of  the  plaintiff 
bank  does  not,  however,  depend  upon  these  rules  of  the 
clearing-  house.  As  a  matter  of  fact,  the  draft  was  not 
returned  before  3  o'clock  of  the  day  upon  which  it  was 
paid.  Whether  or  not  a  return  before  3  o'clock  would, 
under  the  rules  of  the  clearing  house,  have  exonerated 
the  plaintiff,  it  is  not  necessary  for  us  to  determine. 
It  was,  we  think,  at  least  a  question  for  the  jury  to  de- 
termine whether  or  not,  with  the  knowledg-e  of  the 
facts  which  had  been  communicated  to  the  officers  of 
the  plaintiff,  it  was  culpable  neo-lig-ence  on  their  part  to 
receive  this  draft  as  they  did  on  the  morning-  of  June 
14th,  at  about  half  past  10  o'clock,  without  examina- 
tion or  verification,  and  to  retain  it  until  after  2  o'clock; 
and  if  the  jCir}^  should  find  in  the  affirmative,  and  that 
the  defendant  made  the  pa3^ment  to  its  depositor  relying 
upon  the  acceptance  and  payment  of  the  draft  by  the 
plaintiff,  the  defendant  would  be  exonerated  from  lia- 
bility for  anything  more  than  the  amount  remaining  in 
its  hands  to  the  credit  of  the  fraudulent  depositor,  when 
notice  of  the  forgery  was  given  to  the  defendant. 

As  application  to  submit  these  questions  to  the  jury 
was  denied  by  the  court,  the  judgment  should  be  re- 
versed, and  a  new  trial  ordered,  v/ith  costs  to  the  ap- 
pellant to  abide  the  event.     All  concur. 


NOTE. 

Payment  of  Raised  Checks-  Right  to  Recover. — As  a  bank  can  be 
held  bound  only  to  know  the  sitfnature  of  its  depositor,  and  not  the 
handwriting  in  the  body  of  a  check,  money  paid  in  good  faith  and 
without  negligence  on  an  altered  check  may  be  recovered  back  from 
the  party  receiving  it. 

United  States.— %%^^y  v.   Cincinnati    Bank,   18   Wall.  (U.  S.)    614. 

.4/a(!ia;«fl.— Birmingham  Nat.  Bank  v.  Bradley,  103  Ala.  109. 

(r«///br«za.— Redington    v.  Woods,  45  Cal.    406,  13    Am.    Rep.  190. 

hidiana. — Parke  v.  Roser,  67  Ind.  500,  33  Am.  Rep.  102. 

Louisiana. — Merchants'  Bank  v.  Exchange  Bank,  16  La.  457. 

Nebraska.— Or\^?L\\%   First    Nat.  Bank  v.  State  Bank,  22  Neb.  769 


120  CHECKS — INSOLVENCY  [vOL  1 

Corn  Exchange  Nat.  Bank  v.  Solicitors'  Loan  &  Trust  Co 

Nezv  York. — National  Park  Bank  v.  New  York  Ninth  Nat.  Bank, 
46  N.  Y.  77,  7  Am.  Rep.  310  ;  Bank  of  Commerce  v.  Union  Bank,  3 
N.  Y.  230;  White?'.  Continental  Nat.  Bank,  64  N.  Y.  316,  21  Am. 
Kep.  612  ;  National  Bank  of  Commerce  v.  National  Mechanics' 
Banking  Assoc,  55  N.  Y.  211;  Marine  Nat.  Bank  v.  National  City 
Bank,  59  N.  Y.  67,  17  Am.  Rep.  305;  U.  S.  National  Bank  v.  National 
Park  Bank,  59  Hun  (N.  Y.)  495;  National  Bank  of  Commerce  cv. 
Manufacturers',  etc.,  Bank,  122  N.  Y.  367. 

Pejinsylvania. — Rapp  v.  National   Security   Bank,  136  Pa.  St.  426. 

Texas.— Ciiy  Bank  v.  Houston  First  Nat.  Bank,  45  Tex.  203. 


\ 


Corn  Exchange  Nat.  Bank 

V. 

Solicitors'  Loan  &  Trust  Co.  et  al. 

{Supreme  Court  of  Pennsylvania,  Nov.  7,  18^8.) 

Cashing  Check  of  Insolvent — Bill  to  Recover  Money  from  Assignee 
— Trust. — A  bank  to  acconiniodate  a  trust  company  accepted  its  check 
in  exchange  for  the  face  value  of  the  check  in  S2  bills  in  a  package, 
at  a  time  when  the  officers  of  the  trust  company  knew  that  it  was 
insolvent.  The  trust  company  made  an  assignment  on  the  next 
day,  and  turned  over  the  package  of  bills  to  its  assignee.  The  bank 
filed  a  bill  in  equity  praying  that  the  assignee  be  ordered  to  restore 
such  package  to  it  unopened.  Held,  that  svich  relief  should  have 
been  granted,  the  package  of  raonej'  having  been  impressed  with 
a  trust,  the  title  never  having  passed  from  the  bank,  because  the 
fact  that  the  trust  compau3''s  doors  were  kept  open  on  that  day  was 
a  misrepresentation  to  the  public  as  to  its  financial  condition. 

Appeal    by    plaintiff    from     Ptiiladelphia    count}- 
court  of  common  pleas.     Reversed. 

A.  J.    PJiillips,    J.    Levering  Jones,    Hampton    L. 
Carson,  and  Dinuier  Beeber,  for  appellant. 
Richard  S.  Hiinter,  for  appellees. 

Dean,  J.  The  plaintiff  and  defendant — one  as  a  bank, 
the  other  as  a  trust  company— each  did  business  in 
Philadelphia.  The  bank  frequently  accommodated  the 
trust  company  with  currency  of  the  various  denomin- 
ations on  request,  and  without  charg^e.  On  January  2, 
1896,  the  trust  company,  by  telephone,  asked  the  bank 


B  CAS]  CHECKS — INSOLVENCY  121 

Corn  Exchange  Nat.  Bank  v.  Solicitors'  Loan  &  Trust  Co 

for  S2,000  in  $2  bills,  and  on  a  favorable  response  sent 
its  check  for  that  amount  on  the  Fourth  Street  National 
Bank,  where  it  had  funds  to  meet  it,  by  messeng-er, 
who  returned  with  the  bills  put  up  in  packag-es.  On 
the  next  day,  the  trust  company,  without  opening-  its 
doors,  failed,  and  made  an  assignment  for  benefit  of 
creditors,  of  which  the  Fourth  Street  National  had 
immediate  notice.  The  Corn  I^xchang-e  Bauk,  the 
plaintiff,  in  the  regular  course  of  business,  sent  the 
check  to  the  clearing-  house  before  8:30  on  the  morning 
of  the  3d,  but  the  Fourth  Street  National,  because  of  the 
assignment,  refused  to  honor  it,  and  the  Corn  E^xchange 
the  same  day  was  compelled  to  take  it  up.  The  $2,000 
received  by  the  trust  company  remained  in  the  package 
in  its  possession,  unbroken,  and  was  turned  over  to  its 
assignee.  The  plaintiff  then  filed  this  bill,  setting  out 
the  foregoing  facts,  and  prayed  for  an  order  on  the 
assignees  to  restore  to  it  the  unopened  package.  The 
assignees  filed  demurrer,  averring  that  no  special  trust 
relation  calling  for  the  interposition  of  equity  was  es- 
ta,blished  by  the  foregoing  facts,  and,  further,  that 
plaintiff  had  an  adequate  remedy  at  law.  The  court 
below  sustained  the  demurrer,  and  dismissed  the  bill, 
from  which  decree  Vv-e  have  this  appeal. 

From  the  averments  of  the  bill,  which  are  admitted 
by  the  demurrer,  and  the  statements  in  the  deed  of 
assignment,  the  trust  company  was  insolvent  on  the  2d 
of  January,  when  the  transaction  took  place,  and  it 
received  the  plaintiff's  money,  and  the  officers  of  the 
company  were  av^-are  of  its  condition.  Keeping  its 
doors  open  on  that  da}'  was,  whether  intentional  or 
not,  a  representation  to  the  public  of  solvency.  Wheth- 
er they  still  hoped,  on  that  day,  by  some  means  to 
recuperate,  and  avoid  closing,  is  not  material;  the  fact 
of  insolvency  on  that  day  remains.  There  is  no  differ- 
ence in  principle  between  this  transaction  and  that  of 
a  depositor  who  leaves  his  money  with  the  bank  a  few 
hours-  before  it  suspends.  The  acceptance  of  the 
money  under  such  circumstances  is  a  fraud  upon  the 
depositor,    and    if  it  has  not   been  used  or  mixed  with 


122  BILLS  OF  LADING  [vOL  I 

American  Trust  &  Savings  Bank  v.  Austin 

the  common  funds,  and  can  be  identified,  he  can  main- 
tain replevin  for  it.  Furber  v.  Stephens,  35  Fed.  17. 
In  Craig-ie  t-.  Hadley,  99  N.  Y.  131,  1  N.  E.  537,  it  was  / 
held  that,  where  drafts  were  deposited  for  collection 
with  a  bank  which  failed  the  next  day,  the  title  did 
not  pass  out  of  the  depositor,  and  he  could  recover. 
It  will  be  noticed,  no  question  of  confusion  of  assets 
arises  in  this  case.  The  very  packagfe  delivered  by 
plaintiff  remains  in  possession  of  the  assignees.  It 
would  be  hiofhly  inequitable  to  pass  over  to  the  credi- 
tors of  the  insolvent  trust  company  plaintiff's  money 
because  defendants  acquired  possession  of  it  by  a  mis- 
representation of  solvency.  Besides,  plaintiff  was  not 
a  customer  of  the  trust  company,  and  did  not  adopt  it 
as  a  convenient  place  of  deposit,  but,  as  a  pure  accom- 
modation, accepted  a  ^worthless  check  for  the  $2,000. 
We  say  worthless,  because  in  the  course  of  business  it 
could  not  be  presented  until  the  insolvency  of  the 
drawer  became  known,  and  the  fund  on  which  it  had 
been  drawn  had  constructively  passed  to  the  assig-nee 
for  the  benefit  of  creditors.  The  jurisdiction  of  equity 
is  sustainable,  because,  under  the  facts,  the  packag-e 
of  money  is  impressed  with  a  trust.  The  title  never 
passed  Irom  plaintiff,  because  the  possession  was  ob- 
tained by  a  plainly-implied  misrepresentation.  The 
decree  is  reversed,  and  it  is  ordered  that  the  assio-nees 
deliver  to  plaintiff  the  packag-e  or  packag-es  of  S2 
bills,  amounting-  to  82,000,  as  in  plaintiff's  bill  averred; 
costs  to  be  paid  by  appellees. 


American  Trust  &  Savings  Bank 
Austin  et  al. 

(Supreinr  Court  of  A^cw  York,  Special  Term,  Dec.  iSg8.) 

Cashing  Drafts  Accompanied  by  Bills  of  Lading — AttachingCredi- 
tors* — Title  to  Goods. — Where  a    bank  cashed  drafts,   which    were 

*See  note  at  end  of  case. 


B  CAS]  BILLS  OF  LADING  123 

American  Trust  &  Savings  Bank  v.  Austin 

accompanied  by  the  bills  of  lading",  drawn  upon  the  consignee  of  a 
shipment  of  goods,  it  became  the  owner  of  the  drafts  and  bills  of 
lading,  and  of  the  goods  as  covered  by  the  latter,  and,  as  against 
an  attaching  creditor,  entitled  to  the  proceeds  of  the  goods,  the 
fact  that  the  bank,  as  a  general  rule,  in  receiving  checks  or  drafts 
on  deposit  or  for  collection,  acted  only  as  the  agent  for  the  depositor, 
being  immaterial. 

Action  by  the  American  Trust  &  Saving-s  Bank 
ag-ainst  Oscar  F.  Austin  and  others.  Judgement  for 
plaittifF. 

D.  R.  Cobb,  for  plaintiff. 

H.  E.  Miller,   for  defendants. 

HiscocK,  J.  This  action  became  one  of  interpleader 
and  equity  throug-h  the  fact  that  one  Thalheiraer,  hold- 
ing- some  moneys  claimed  b\"  the  plaintiff,  and  also  by 
the  present  defendants,  was  allowed  to  pay  the  same 
into  court,  and  have  substituted  as  defendants  herein 
said  present  defendants.  One  Hoffmeyer  shipped  from 
Chicag-o  to  said  Thalheimer,  at  Syracuse,  two  lots  of 
butter.  He  drew  two  drafts  upon  said  Thalheimer 
for  the  value  thereof  claimed  by  him,  being-  nearly 
S500.  Upon  said  drafts,  and  the  bills  of  lading-  for  the 
butter  so  shipped,  as  aforesaid,  he  obtained  from  plain- 
tiff the  full  amount  of  the  drafts,  less  exchang-e,  etc. 
Plaintiff,  having-  advanced  the  money  upon  the  drafts 
and  bills  of  lading-,  forwarded  the  same  throug-h  its 
correspondents  to  Syracuse,  for  collection,  but  pa}^- 
ment  was  refused  by  Thalheimer,  upon  the  g-round 
that  the  butter  was  not  up  to  the  ag-reed  standard. 
Subsequently,  however,  he  sold  the  butter,  and  received 
the  proceeds  thereof,  amounting-  to  the  sum  of  S476, 
which  has  now  been  paid  into  court,  as  aforesaid. 
While  the  proceeds  of  said  butter,  either  in  the  form 
of  accounts  or  moneys,  were  1u  his  hands,  the  defen- 
dants other  than  Austin  obtained  an  attachment  ag-ainst 
Hoffmeyer,  which  Austin,  as  sheriff,  purported  to  levy 
upon  such  avails  of  the  butter.  Various  questions  are 
raised  in  the  case,  but,  in  view  of  the  decision  reached 
upon  the  principal  one  litig-ated,  it  will  be  unnecessary 
to  consider  the  others.     It  is  claimed   by  the  plaintiff 


124-  BILLS  OF  LADING  [vOL  I 

American  Trust  &  Savings  Bank  v.  Austin 

that  it  discounted  the  drafts  drawn  by  Hoffmeyer,  as 
aforesaid,  upon  the  strength  of  the  bills  of  lading-  ^t- 
companyinitr  the  same,  and  that  by  virtue  thereof  it 
became  the  owner  of  the  drafts,  and,  to  the  extent  of 
the  amount  thereof,  at  least,  the  owner  of  the  gfoods 
covered  by  the  bills  of  lading-,  and  the  proceeds  thereof. 
Upon  the  other  hand,  it  is  insisted  by  the  defendants 
that  the  plaintiff  received  said  drafts  and  bills  of  lad- 
ing" for  collection  merely,  or,  at  least,  as  the  agent  of 
Hoffmeyer,  and  did  not  become  the  owner  thereof. 
A  consideration  of  all  the  evidence  upon  this  subject, 
which  it  is  unnecessary  to  recapitulate  at  length,  leads 
me  to  the  conclusion  that  the  plaintiff's  contention  is 
the  correct  one,  and  that  it  did  become  the  owner  of 
the  drafts  and  bills  of  .lading-,  and  of  the  g-oods  as  cov- 
ered by  the  latter.  No  serious  contention  is  raised 
that  plaintiff  passed  the  entire  amount  of  the  drafts, 
when  it  took  them,  accompanied  by  the  bills  of  lading, 
to  the  credit  of  Hoffmeyer  in  his  account,  and  they 
were  subsequently  drawn  out  by  him.  Defendants' 
contention  that  plaintiff  was  acting-  simply  as  collect- 
ing agent  for  Hoffmeyer  is  based  larg-el}'  upon  a  gen- 
eral rule  adopted  by  plaintiff  in  its  banking  business, 
to  the  effect  that,  in  receiving-  checks  or  drafts  on  de- 
posit or  for  collection,  it  acted  only  as  ag-ent  for  the 
depositor,  and,  beyond  carelessness  in  selecting-  agents 
at  other  points,  and  in  forwardingf  to  them,  it  assumed 
no  liability.  This  rule  was  made  and  adopted  by  plain- 
tiff, and  of  course  it  could,  if  it  saw  fit,  in  connection 
with  any  transaction,  waive  it,  and  make  the  transfer 
of  drafts  to  it  absolute  and  unconditional.  But,  even 
if  it  did  not  do  this  in  this  transaction,  the  rule  does 
not  seem  to  me  to  have  the  effect  claimed  by  defen- 
dants. If  plaintiff  discounted,  and  thereby  became 
the  absolute  owner  of,  a  draft  for  a  customer,  and  the 
draft  for  any  reason  was  not  paid,  it  would  naturally 
expect  to  charg-e  it  back  to  the  customer's  account,  or 
compel  him  in  some  way  to  make  it  g-ood.  In  the  case 
of  a  draft  so  discounted,  and  payable  in  a  distant  cit3% 
it  would  be  necessary  for  the  plaintiff  to    utilize  a  line 


B  CAS]  BILLS  OF  LADING  125 

Note 

of  collecting-  ag-ents,  and  any  one  of  them,  through 
failure  or  insolvency,  might  defeat  the  collection  of  the 
draft,  and  place  plaintiff  where  it  might  desire  to 
charge  the  same  back  against  its  customer.  And,  as 
I  look  at  it,  this  rule  was  intended  to  cover  that  part 
of  its  transactions  wnth  its  customers,  and,  as  to  those 
acts,  to  make  the  customer  responsible,  and  relieve  the 
bank  from  liability,  except  within  the  limits  named  by 
the  rule.  Findings  and  judgment  in  favor  of  plaintiff, 
with  costs,  may  be  prepared  and  settled,  upon  one 
day's  notice,  if  not  agreed  upon. 
Judgment  for  plaintiff,  with  costs. 


Bills  of  Lading — Rights  of  Pledgee. — Where  the  consig-nor  draws 
upon  his  consig-nee  for  the  purchase-money,  and  the  draft,  with  bill 
of  lading-  attached,  is  indorsed  or  transferred  to  some  one  who  dis- 
counts the  bill  of  exchange,  a  special  property  in  the  g-oods  thereby 
passes  to  the  transferee,  subject  to  be  divested  by  the  acceptance 
and  payment  of  the  draft.  Michigan  Cent.  R.  Co.  v.  Phillips,  60  111. 
190;  Rumsey  e'.  Nickerson,  35  111.  App.  188;  Illinois  Cent.  R.  Co. 
V.  Southern  Bank,  41  111.  App.  287;  Halsey  v.  Warden,  25  Kan.  128; 
Cairo  First  Nat.  Bank  v.  Crocker,  111  Mass.  163  ;  Green  Bay  First 
Nat.  Bank  v.  Dearborn,  115  Mass.  219  ;  Stollenwerck  v.  Thacher,  115 
Mass.  224  ;  Chicago  Fifth  Nat.  Bank  v.  Bayley,  115  Mass.  228  ;  Hath- 
away V.  Havnes,  124  Mass.  311;  Davenport  Nat.  Bank  v.  Homeyer, 
45  Mo.  145,  iOO  Am.  Dec.  363  ;  Midland  Nat.  Bank  v.  Missouri,  etc., 
R.  Co.,  1  Mo.  App.  Rep.  417;  Skilling  v.  Bollman,  6  Mo.  App.  76; 
Rochester  Bank  ?'.  Jones,  4  N.  Y.  497,  55  Am.  Dec.  290  ;  Cincinnati 
First  Nat.  Bank  v.  Kelly,  57  N.  Y.  37  ;  City  Bank  v.  Rome,  etc.,  R. 
Co.,  44  N.  Y.  136  ;  Merchants  Bank  v.  Union  R.,  etc.,  Co.,  69  N.  Y. 
379  ;  Commercial  Bank  v.  Pfeiffer,  22  Hun  (N.  Y.)  327,  108  N.  Y.  242  ; 
Cayuga  County  Nat.  Bank  :'.  Daniels,  47  N.  Y.  631  ;  Syracuse  First 
Nat.  Bank  t'.  iSTew  York  Cent.,  etc.,  R.  Co.,  85  Hun  (N.  Y.)  160; 
Indiana  Nat.  Bank  v.  Colgate,  4  Daly  (N.  Y.)  41  ;  Marine  Bank  v. 
Wright,  48  N.  Y.  1  ;  Emery  i'.  Irving  Nat.  Bank,  25  Ohio  St.  360,  18 
Am.  Rep.  299;  Holmes  v.  German  Security  Bank,  87  Pa.  St.  525,  33 
Am.  Rep.  745;  Holmes  v.  Bailey,  92  Pa.  St.  57;  Richardson  v.  Na- 
than, 167  Pa.  St.  513  ;  Tilden  v.  Minor,  45  Vt.  196;  Neill  v.  Rogers 
Bros.  Produce  Co.  (W.  Va.  1895),  23  S.  E.  Rep.  702. 

The  pledgee  of  the  bill  of  lading  received  thus  in  good  faith  from 
a  third  person  for  value  gets  a  good  title  against  the  consignor's 
creditors.  Forbes  v,  Boston,  etc.,  R.  Co.,  133  Mass.  154;  Hathaway 
V.  Haynes,  124  Mass.  311  ;  Petitt  v.  First  Nat.  Bank,  4  Bush  (Ky.)  334. 


126  BILLS  OF  LADING  [vOL  I 

Oxford  Lake  Line  z'.  First  Nat.  Bank  of  Pensacola 


Oxford  Lake  IvIne 

V. 

First  Nat.  Bank  Of  Pensacola. 

{Supreme  Court  of  Florida,  Nov-S,  iSqS.) 

Banks  and  Banking — Collection  of  Bills  of  Exchange  Having  Bill  of 
Lading  Attached.* — In  the  absence  of  special  instructions,  if  a  time 
bill  of  exchange  with  bill  of  lading  attached  be  sent  to  an  agent  for 
collection,  there  is  an  implied  obligation  upon  the  agent  to  hold 
the  bill  of  lading  until  the  bill  of  exchange  is  either  accepted  or 
paid,  according  to  circumstances  ;  and  he  cannot  deliver  the  bill  of 
lading  without  requiring  the  one  or  the  other. 

Principal  and  Agent — Ambiguous  Authority.* — Where  the  instruc- 
tions to  an  agent  are  couched  in  such  uncertain  terms  as  to  be  rea- 
sonably susceptible  of  two  different  meanings,  and  the  agent  in 
g'ood  faith  and  without  negligence  adopts  one  of  them,  the  principal 
cannot  be  heard  to  assert,  either  as  against  the  agent  or  as  against 
third  persons  who  have  in  good  faith  and  without  negligence  relied 
upon  the  same  construction,  that  he  intended  the  authority  to  be 
executed  in  accordance  with  the  other  interpretation. 

Same. — If  the  principal's  instructions  to  his  agent  will  reasonably 
admit  of  two  different  interpretations,  the  agent  is  not  thereby 
authorized  to  disregard  the  instructions  entirely,  and  substitute 
his  own  judgment  therefor;  but,  if  he  acts  at  all  in  such  cases,  he 
must  follow  one  of  the  interpretations  reasonably  derivable  from 
the  uncertain  terms  of  the  instruction. 

Same — Deviation  from  Instructions.* — It  is  the  privilege  of  the 
principal  to  give  instructions,  and  the  duty  of  the  agent  to  obey 
them,  and  anj'  unauthorized  deviation  from  or  neglect  of  the  prin- 
cipal's instructions,  whereby  damage  results  to  him,  will  entitle  him 
to  an  action  against  the  agent,  although  the  latter,  in  deviating 
from  or  neglecting  to  obey  instructions,  acted  in  good  faith,  and 
honestly  believed  he  was  acting  for  the  best  interests  of  his  princi- 
pal. 

Same — Ratification.* — Express  or  implied  ratification  of  the  un- 
authorized act  of  an  agent  must,  in  order  to  bind  the  principal,  be 
with  full  knowledge  of  all  material  facts;  and,  if  material  facts  be 
either  suppressed  or  unknown,  the  ratification  is  invalid,  because 
founded  in  fraud  or  mistake. 

Same— Same — Burden  of  Proof. — The  principal  has  a  right  to  pre- 
sume that  his  agent  has  followed  instructions,  and  has  not  exceeded 
his  authority,  and  generally  it  does  not  devolve  upon  him  to  make 
inquiries  as  to  the  facts.  Whenever  it  is  sought  to  bind  him  upon 
the  ground  of  ratification  either  express  or  implied,  it  must  be  shown 

*See  notes  at  end  of  case. 


\ 


B  CAS]  BILLS  OF  LADING  127 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola 

that  he  ratified  upon  full  knovvledg-e  of  all  material  facts,  or  that  he 
was  willfully  ig-norant,  or  purposely  refrained  from  seeking  infor- 
mation, or  that  he  intended  to  adopt  the  unauthorized  act  at  all 
events,  and  under  whatever  circumstances. 

Pleading. — A  bad  replication  is  a  g-ood  answer  to  a  bad  plea. 

(Syllabus  by  the  Court.) 

Error  by  plaintiff  to  Escambia  county  circuit  court. 
Reversed. 

On  October  25,  1892,  plaintiff  in  error  instituted  suit 
ag-ainst  defendant  in  error  in  the  circuit  court  of  Es- 
cambia county  ;  the  declaration,  filed  November  7,1892, 
alleo-ing-  that  the  First  National    Bank  of  case  stated 

Anniston,  state  of  Alabama,  did  on  August 
1,  1892,  send  and  remit  to  defendant  a  bill  of  lading-  of 
the  Ivouisville  &  Nashville  Railroad  Company  for  a 
dummy  eng-ine  and  two  coaches,  shipped  on  said  rail- 
road, at  Anniston,  Ala.,  by  the  plaintiff,  to  be  delivered 
at  Pensacola,  state  of  Florida,  and  accompanying-  said 
bill  of  lading-  was  a  draft  drawn  by  the  plaintiff  on  the 
Pensacola  Terminal  Company,  in  favor  of  H.  A.  Tracy, 
cashier  of  said  First  National  Bank  of  Anniston,  for 
the  sum  of  $1,650,  dated  July  30,  1892,  payable  30  days 
after  date,  and  also  another  for  the  sum  of  $1,650,  pay- 
able at  sight  ;  that  said  First  National  Bank  of  Annis- 
ton did,  at  the  time  of  sending-  said  bill  of  lading-  and 
drafts,  instruct  defendant  not  to  deliver  said  bill  of  lad- 
ing- to  said  Pensacola  Terminal  Company  without  the 
acceptance  by  the  said  Pensacola  Terminal  Company 
of  said  first  above  mentioned  draft,  as  well  as  the  pay- 
ment of  the  last  above  mentioned  draft,  but  that  de- 
fendant, disreg-arding-  its  duty  in  that  behalf,  did 
deliver  said  bill  of  lading-  to  said  Pensacola  Terminal 
Company  upon  the  payment  of  said  sight  draft,  with- 
out procuring-  from  said  Pensacola  Terminal  Company 
an  acceptance  by  it  of  said  30-day  draft,  and  did  return 
said  30-day  draft  to  said  First  National  Bank  of  An- 
niston without  an  acceptance  of  the  same  by  the  said 
Pensacola  Terminal  Company,  whereby  defendant  be- 
came liable  to  pay  said  First  National  Bank  of  Annis- 
ton the  sum  of  $1,650,  the  amount  of  said  30-dav  draft. 


128  BILLS  OF  LADING  [vOL  I 

Oxford  Lake  Line  i'.  First  Nat.  Bank  of  Pensacola 

which  claim  and  demand  for  said  sum,  by  reason  of  the 
matters  set  forth,  the  said  First  National  Bank  of  An- 
niston  did,  on  October  4,  1892,  assign  and  transfer  to 
plaintiff,  wherefore,  plaintiff  says  it  is  damaged  in  the 
sum  of  $3,000. 

On  December  27,  1893,  defendant,  by  leave  of  the 
court,  filed  two  pleas  to  plaintiff's  declaration,  to  each 
of  which  plaintiff  replied  specially.  These  replications- 
were  demurred  to  by  defendant,  upon  the  ground  that 
they  were  not  sufficient  answers  in  law  to  the  pleas. 
On  January  11,  1894,  the  court  sustained  this  demur- 
rer ;  and,  plaintiff  declining  to  plead  further,  final 
judgment  upon  the  demurrer  was  entered  for  defend- 
ant, from  which  this  writ  of  error  was  taken  to  our 
June  term,  1894. 

The  first  plea  alleged  "that  the  said  First  National 
Bank  of  Anniston  did  not  instruct  this  defendant  in  the 
manner  and  form  as  is  alleged  in  said  plea,  but  all  of 
its  instructions  in  connection  with  said  drafts  were 
embraced  in  the  words  'deliver  attached  documents 
only  on  payment  of  drafts,'  contained  in  a  letter  to  de- 
fendant from  the  said  First  National  Bank  of  Anniston, 
inclosing  to  the  defendant  the  said  bill  of  lading  and 
drafts."  The  replication  to  this  plea  alleged  "that  the 
instructions  accompanying  said  bill  of  lading  and  drafts 
were  not  such  as  stated  in  said  plea,  but  were  con- 
tained in  a  document  partly  in  print  and  partly  in  writ- 
ing, a  copy  of  which  document  is  hereto  annexed  as  a 
part  of  this  replication,  which  instructions,  as  pre- 
sented by  said  document,  are,  in  their  legal  tenor  and 
effect,  such  as  are  alleged  in  said  declaration."  The 
document  referred  to,  omitting  head  as  immaterial, 
was  as  follows  : 

"Anniston,  Ala.,  Aug".  1st,  1892. 

"FirstNat'l  Bank,   Pensacola,  Fla. — Dear  Sir  :  I    inclose    for  col- 
lection   and    remittance    No. .     Deliver     attached   documents 

onlj'  on  payment  of  drafts. 

5178  N.  P 1650 

5179  N.  P.     For  acceptance 1650 

"Respectfully,  yours, 

"H.  A.  Young,  Cashier." 


II 


B  CAS]  BILLS  OF  LADING  12^ 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola 

The  second  plea  alleg-ed  that  the  drafts  mentioned  in 
the  declaration  were  drawn  by  the  plaintiff  upon  the 
Pensacola  Terminal  Company,  in  pursuance  of  a  writ- 
ten contract  between  the  plaintiff  and  the  Pensacola 
Terminal  Company  for  the  sale  of  the  eng-ine  and  cars 
mentioned  in  the  declaration,  a  copy  of  the  contract 
beiag-  attached  to  and  made  a  part  of  the  plea.  The  plea 
further  alleged  that  upon  presentation  of  the  drafts  to 
the  Pensacola  Terminal  Company,  it  declined  to  pay 
the  sight  draft  and  accept  the  30-day  draft,  because,  as 
it  alleged,  the  property  was  not  in  the  condition  pro- 
vided for  b}"  the  contract,  but  offered  to  pay  the  sight 
draft,  and  to  leave  the  amount  of  the  balance  of  pay- 
ment for  said  property  open  for  adjustment  between  it 
and  the  plaintiff,  if  the  said  bill  of  lading  should  be 
surrendered  to  it,  and  defendant,  believing  that  its 
instructions  from  the  First  National  Bank  of  Anniston 
authorized  it  so  to  do,  surrendered  said  bill  of  lading  to 
the  Pensacola  Terminal  Company  upon  its  paymentof  the 
sight  draft,  which  payment  was  made  on  the  6th  day  of 
August,  1892  ;  that,  on  said  day,  defendant  notified  the 
First  National  Bank  of  Anniston  that  the  said  SI, 650 
sight  draft  had  been  paid,  and  that  the  said  SI, 650  30-day 
draft  had  not  been  accepted,  and  on  the  same  da}'^  re- 
mitted the  said  SI, 650  received  from  the  said  Pensa- 
cola Terminal  Company  to  the  First  National  Bank  of 
Anniston,  which  remittance  was  received  by  said  First. 
National  Bank  of  Anniston  on  August  7th,  1892  ;  that 
on  August  8th,  1892,  the  defendant  returned  to  the 
First  National  Bank  of  Anniston  the  unaccepted  draft 
which  was  received  by  the  latter  on  August  9,  1892  ; 
that  on  August  12,  1891,  the  defendant,  although  the 
said  First  National  Bank  of  Anniston  knew  the  said 
fact  before,  notified  the  said  First  National  Bank  of 
Anniston  of  the  refusal  of  the  Pensacola  Terminal 
Company  to  accept  the  said  30-day  draft  as  aforesaid, 
and  of  defendant's  consequent  action  in  surrendering- 
to  it  the  said  bill  of  lading  without  the  acceptance  of 
said  draft ;  that  plaintiff  knew  the  facts  before  stated 
before  the  assigfnment   to  it  alletred  in  the  declaration  i: 


130  BILLS  OF  LADING  [vOL  1 

Oxford  Lake  Line  z'.  First  Nat.  Bank  of  Pensacola 

that  neither  the  First  National  Bank  of  Anniston  nor 
the  plaintiff  had  ever  notified  the  Pensacola  Terminal 
Company  of  any  repudiation  of  the  action  of  defendant 
in  delivering-  the  bill  of  lading-,  nor  had  they  ever  taken 
any  action  ag-ainst  the  Pensacola  Terminal  Company  to 
recover  back  the  said  property,  although  the  same  had 
ever  since  remained  the  property  of  the  Pensacola 
Terminal  Company,  and  in  its  possession,  nor  ever 
offered  to  return  or  ever  returned  to  the  defendant  or 
to  the  Pensacola  Terminal  Company  the  said  sum  of 
SI, 650,  received  by  the  First  National  Bank  of  Anniston, 
as  aforesaid.  The  contract  referred  to  in  this  plea  was 
dated  May  19,  1892,  «.nd  thereby  the  plaintiff  agreed 
to  deliver  to  the  Pensacola  Terminal  Company,  free  on 
board  cars  on  the  Louisville  &  Nashville  Railroad 
Company's  tracks  at  Anniston,  Ala.,  a  certain  dummy 
equipment  owned  by  the  plaintiff,  consisting"  of  one  H. 
K.  Porter  &  Co.  dummy  eng-ine,  No.  1,087,  one  Brill 
dummy  coach,  and  one  La  Clede  dummy  coach,  in  con- 
dition therein  very  minutely  specified,  all  to  be  put  in 
first-class  repair  and  condition,  subject  to  the  inspect- 
ion and  approval  of  two  persons  therein  named.  In 
consideration  thereof,  the  Pensacola  Terminal  Company 
agreed  to  pay  plaintiff  S3, 300, — one  half;  or  SI, 650,  cash, 
on  presentation  at  Pensacola  of  draft  for  the  amount, 
with  bill  of  lading-  for  the  engine  and  two  cars  attached, 
payable  in  New  York  exchang-e  ;  and  the  other  one- 
half  to  be  paid  by  a  30- day  acceptance,  payable  in  New 
York  exchang-e.  The  replication  to  this  plea  alle^red 
that  there  was  no  foundation  for  the  alleg-ed  belief  of 
defendant  that  it  was  authorized  to  deliver  said  bill  of 
lading  without  a  previous  acceptance  of  the  30-day  draft, 
because  the  contrar}'  plainl}'  appears  in  the  writiug- 
which  accompanied  the  drafts  and  bill  of  lading-,  which 
writing  was  made  a  part  of  the  replication,  and  was 
the  same  as  that  referred  to  and  made  a  part  of  the 
replication  -to  the  first  plea  ;  wherefore  the  replica- 
tion alleg-ed  the  defendant  did  deliver  said  bill  of  lad- 
ing in  the  face  of  the  plain  instructions  in  said  ^vriting- 
contained.     It  was  further  alleged  that  defendant  did 


B  CAS]  BILLS  OF  LADING  131 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola 

not,  at  the  time  of  sending-  to  the  first  National  Bank 
of  Anniston  the  proceeds  of  said  sig-ht  draft,  and  noti- 
fyinpf  it  of  the  nonacceptance  of  said  SO-da}'  draft,  also 
notify  said  Bank  of  Anniston  that  defendant  had  sur- 
rendered said  bill  of  lading*,  but  did  suppress  and  con- 
ceal said  fact,  as  appears  from  the  teleg^ram  and  writ- 
ing* thereto  annexed  as  parts  of  the  replication.  The 
telcg-ram  referred  to,  dated  Aug-ust,  6,  1892,  addressed 
to  the  "First  Nat'l  Bank"  (of  Anniston),  reads  :  "Draft 
paid;  remitted  to-day,  but  thirty  days  not  yet  accepted." 
The  writing  referred  to  was  dated  August  6,  1892,  and 
reads  as  follows  : 

"Your  favor  of  7/20  received,  with  stated  inclosure.     We  inclose 
our  check  on  New  York,  $1,650.00. 

"Exchange, . 

"Collection  charges, . 


"In  payment  of  the  items  stated  below. 
"Yours,  trulj',  J.  S.  Leonard,  Cashier, 

"Per  J.  M.  Frater. 
No.  106. 

Oxford  L.  Line. 
5158  Pensacola  Ter.  Co.     1650. 
We  enter  5159  Pensacola  Ter.  Co.     1650. 
"We    beg   to   confirni   our   telegram    advising  remittance  to  j'ou 
today." 

The  errors  assigned  are  that  the  court  erred — First, 
in  sustaining*  defendant's  demurrer  to  plaintiff's  repli- 
cation to  defendant's  first  plea;  second,  in  sustaining* 
defendant's  demurrer  to  plaintiff's  replication  to  de- 
fendant's   second  plea. 

Ricliard  L.  Ccuiipbcll  :i.nd  Jo lui  C.  Avery,  for  plain- 
tiff  in  error. 

BloiDit  ct-  Blount^  for  defendant  in  error. 

Carter,  J.  (after  stating*  the  facts).  No  question 
as  to  the  measure  of  plaintiff's  damages  is  here  involved 
or  argued.  It  is  conceded  by  all  parties  that  the 
plaintiff's  declaration  alleged  a  cause  of  action,  but  it  is 
insisted  by  defendant  in  error  that  defendant's  pleas 
each  presented  defenses  to  the  declaration,  the  effect 
of  which  was  not  avoided  by  the  plaintiff's  replications 
thereto. 


132  BILLS  OF  LADING  [vOL  I 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola 

1.     We  think  the   plaintiff's  replication  to  the   first 

plea    presented    a    complete    answer    thereto.     In   the 

absence  of  any  special  instructions,  if   a  time  bill   of 

exchang-e   with    bill    of    lading-  attached  be 

fne-ooi'htfiN"^>  ^^^^  ^'^  ^°  ag-ent  for  collection,  there  is  an 
Bills  or  Exfiuiigc  implied  obligation  upon  the  agent  to  hold 
Ladiii?  Attaciied.    the  bill  of  lading"  until  the  bill  of  exchange 

is  either  accepted  or  paid,  according-  to  cir- 
cumstances. He  cannot  deliver  without  requiring- 
the  one  or  the  other.  Commercial  Bank  of  Manitoba  v. 
Chicago,  St.  P.  &  K.  C.  Ry.  Co.,  160  111.  401,  43  N. 
E.  756;  Bank  r.  Cummings,  86  Tenn.  609,  18  S.  W. 
115;  National  Bank  of  Commerce  of  Boston  v. 
Merchants'  Nat.  Bank  of  Memphis,  91  U.  S.  92;  Dows 
v.  Bank,  Id.  618  ;  Schoregge  i-.  Gordon,  29  Minn. 
367,  13  N.  W.  194;  Port.  Bills,  Lad.  §  523  e^ 
sec].;  Daniel,  Neg-.  Inst.  §  1734b.  In  this  case,  however, 
there  were  special  instructions.  Two  bills — one  at 
sight,  the  other  at  30  days — were  sent  to  defendant  for 
collection  and  remittance,  wMth  instructions  to  procure 
acceptance  of  the  time  bill,  and  to  "deliver  attached 
documents  [the  bill  of  lading]  only  on  payment  of  drafts. " 
If  there  is  any  ambiguity  about  these  instructions,  it 
consists  in  an  uncertainty  as  to  whether  the  bill  of  lad- 
ing was  to  be  delivered  upon  payment  of  the  sight  draft 
and  acceptance  of  the  other,  or  upon  payment  of  both. 
There  certainly  was  no  authorit}^  given  thereby  to  de- 
liver the  bill  of  lading  upon  payment  of  the  sight  draft 
only.  It  is  unquestionably  true,  as  contended  by  defend- 
ant in  error,  that  where  the  instructions  to  an  agent  are 
couched  in   such  uncertain    terms  as  to    be    reasonably 

susceptible  of  two  different  meanings,  and 
Priiifipai anrt        the  agent   in  good  faith  and    without  uegli- 

Afrent— Aiubiffuons  ii  r  l^  ,  i  •        •        ^ 

Aiitiiority.  gence  adopts  one  ot  them,  the  principal  can- 

not be  heard  to  assert,  either  as  against  the 
agent  or  as  against  third  persons  w^ho  have  in  good 
faith  and  without  negligence  relied  upon  the  same 
construction,  that  he  intended  the  authority  to  be  exe- 
cuted in  accordance  with  the  other  interpretation.  Me- 
chem,  x\g.  §  315.     But,  because  an  agent's  instructions 


B  CAS]  BILLS  OF  LADING  133 

Oxford  Lake  Line  z'.  First  Nat.  Bank  of  Pensacola 

will  admit  of  different  interpretations,  he  is  not  there- 
by authorized  to  disregard  them  entirely,  and  substitute 
his  own  judg-ment  in  the  place  thereof.  If 
he  acts  at  all  in  such  cases,  he  must  follow 
one  of  the  interpretations  reasonably  derivable  from 
the  uncertain  terms  of  the  instructions.  In  this  case 
defendant  did  neither;  but,  on  the  contrary,  sub- 
stituted its  own  ideas  of  what  was  proper  under 
the  circumstances,  thereby  acting-  directly  antagonistic 
to  its  instructions.  The  replication  was  a  good  answer 
to  the  first  plea,  and  the  demurrer  should  have  been 
overruled. 

2.  It  is  argued  with  great  confidence  and  ability  by 
counsel  for  defendant  in  error  that,  under  the  facts 
disclosed  by  the  second  plea  and  replication,  the 
Anniston  bank  ratified  the  defendant's  act  in  surren- 
dering the  bill  of  lading  without  requiring  acceptance 
of  the  30-day  draft  ;  and,  in  support  of  this  view,  it  is 
claimed  that  the  Anniston  bank  received  the  $1,650 
proceeds  of  the  sight  draft  with  sufficient  notice  to  put 
it  upon  inquiry  as  to  the  surrender  of  the  bill  of  lading, 
and  retained  the  money  after  full  knowledge  that  the 
bill  of  lading  had  been  surrendered.  In  considering 
this  question,  we  must  bear  in  mind  that  the  defendant 
was  acting  as  an  agent  of  limited  powers  over  a  specific 
subject-matter.  The  subject-matter  consisted  of  two 
drafts  and  a  bill  of  lading.  Its  powers  were  defined 
by  special  instructions,  viz.  to  deliver  the  bill  of  lading 
upon  payment  of  one  draft  and  acceptance  of  the  other. 
The  contract  between  plaintiff  and  the  Pensacola 
Terminal  Company  was  not  attached  to  the  drafts,  nor 
was  defendant  given  any  power  or  authority  over  it, 
nor  had  plaintiff  held  out  to  defendant  or  the  terminal 
company  in  any  way  that  defendant  w^as  authorized  to 
exercise  an}^  authority  over  this  contract,  nor  was 
there  anything  in  the  nature  of  the  bill  of  lading, 
drafts,  or  instructions  transmitting  them  to  defendant, 
indicating  that  they  had  any  connection  with  plaintiff's 
contract  with  the  terminal  compan3^  The  defendant's 
duties  were  plain  and  simple;  the  extent  of  its  authority 


134  BILLS  OF  LADING  [vOL  I 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola 

clearly  defined  by  specific  instructions.  It  is  the 
privileofe  of  the  principal  to  g-ive  instructions,  and  the 
Same-Deviation  duty  of  his  agent  to  obey  them.  Any  un- 
rrom  Instructions,  authorizcd  deviation  from  or  neglect  of  the 
principal's  instructions,  whereby  damage  results,  will 
entitle  him  to  an  action  against  the  agent,  even  though 
the  latter,  in  deviating  from  or  negdecting  to  obey 
instructions,  acted  in  good  faith,  and  honestly  believed 
he  was  acting  for  the  best  interest  of  his  principal.  Me- 
chem  Ag.  §§  474-477;  Story,  Ag.  §§  192,  217c;  Walker  v. 
Walker.  5  Heisk.  425;  Bank  of  Owensboro  v.  Western 
Bank,  13  Bush,  526  ;  Hall  v.  Storrs,  7  Wis.  253.  When 
the  defendant,  without  authority,  delivered  the  bill  of 
lading  which  enabled  the  terminal  compau}^  to  get 
possession  of  the  plaintiff's  property  without  acceptance 
of  the  time  draft,  it  disobeyed  plain  instructions,  and 
even  though  done  under  the  honest  belief,  as  alleged 
in  the  plea,  thereby  subjected  itself  to  liability,  unless, 
as  it  claims,  its  acts  were  subsequently  ratified  by  the 
plaintiff.  The  plea  does  not  claim  an  express  ratifica- 
tion of  defendant's  act.  It  alleges  subsequent  conduct 
on  the  part  of  plaintiff  which  it  is  claimed  constitutes 
an  implied  ratification,  viz.  the  acceptance  and  retention 
of  the  proceeds  of  the  sight  draft  collected  at  the  time 
„  .„  ,.     the  bill   of    lading    was    delivered    to    the 

Same— Ratilication.   ,  .        ,  -r-v  •  i  •      i 

terminal  company.  rivxpress  or  implied 
ratification  of  the  unauthorized  act  of  an  agent  must, 
in  order  to  bind  the  principal,  be  with  full  knowledge 
of  all  material  facts.  If  material  facts  be  either 
suppressed  or  unknown,  the  ratification  .is  invalid, 
because  founded  in  mistake  or  fraud.  Town  of  Madison 
v.  Newsome,  39  Fla.  149,  22  South.  270;  Bell  v.  Cun- 
ningham, 3  Pet.  69  ;  Bank  of  Owensboro  t'.  Western 
Bank,  13  Bush,  526;  Humphrey  v.  Havens,  12  Minn. 
298  (Gil.  196);  Bohart  v.  Oberne,  36  Kan.  284,  13  Pac. 
388;  Martin  f.  Hickman,  64  Ark.  217,  41  S.  W.  852; 
Express  Co.  v.  Trego,  35  Md.  47;  Dean  v.  Bassett,57 
Cal.  640;  Navigation  Co.  v.  Dandridge,  8  Gill  &  J.  248 
(text,  323);  Vincent  v.  Rather,  31  Tex.  77;  Bank  t'^ 
Drake,  29  Kan.  311;  Bennecke  v.   Insurance  Co.,    105 


B  CAS]  BIIvLS  OF  LADING  135 

Oxford  Lake  Ivine  v.  First  Nat.  Bank  of  Pensacola 

U.  S.  355;  Owino-s  v.  Hull,  9  Pet.  607;  Davis  v.  Talbot, 
137  Ind.  235,  36  N.  E.  1098;  Holm  v.  Bennett,  43  Neb. 
808,  62  N.  W.  194;  Baldwin  v.  Burrows,  47  N.  Y.  199; 
Wheeler  v.  Sleigh  Co.,  39  Fed..  347;  Clark 
V.  Clark,59  Mo.  App.  532;  Bryant  z'.  Moore,  ^dV^irVv^.x, 
26  Me.  84.  Generall}^  speaking-,  it  does 
not  devolve  upon  the  principal  to  make  inquiries  as  to 
the  facts.  He  has  a  rig-ht  to  presume  that  his  ag-ent 
has  followed  instructions,  and  has  not  exceeded  his 
authority.  Whenever  he  is  soug-ht  to  be  held  liable  on 
the  g"round  of  ratification,  either  express  or  implied,  it 
must  be  shown  that  he  ratified  upon  full  knowledgfe  of 
all  material  facts,  or  that  he  was  willfully  ig-norant,  or 
purposely  refrained  from  seeking-  information,  or 
that  he  intended  to  adopt  the  unauthorized  act 
at  all  events,  under  whatever  circumstances.  Combs 
V.  Scott,  12  Allen,  493;  Marsh  v.  Joseph  [1897] 
1  Ch.  Div.  213;  Lime  Co.  v.  Green,  L.  R.  7  C.  P.  43; 
Mechem,  Ag-.  §  129.  Tested  by  these  rules,  the  second 
plea  was  bad,  and,  even  if  the  replication  was  itself  bad, 
it  was  a  g-ood  answer  to  a  bad  plea.  Wade  v.  Doyle,  17 
Fla.  522.  The  plea  admitted  that  the  terminal  com- 
pany paid  the  sig-ht  draft  on  Aug-ust  6th,  after  it  had 
notified  defendant  that  the  property  embraced  in  its 
contract  with  plaintiff  was  not  in  the  condition  provided 
by  said  contract,  and  that  the  draft  was  paid  upon  the 
understanding-  that  the  bill  of  lading-  was  to  be  surren- 
dered without  acceptance  of  the  time  draft,  and  that 
the  amount  of  the  balance  of  payment  for  the  property 
be  left  open  for  future  adjustment  between  the  terminal 
compan}?-  and  the  plaintiff.  By  this  course  the  defen- 
dant not  only  violated  its  instructions  as  a  special  ag-ent, 
but  it  took  upon  itself  to  make  a  new  contract  for  the 
plaintiff,  without  the  slig-htest  semblance  of  authority 
to  do  so.  Yet  subsequent  to  this  transaction  defen- 
dant teleg-raphed  the  Anniston  bank:  "Draft  paid;  re- 
mitted to-day,  but  thirty  da^^s  not  yet  accepted;"  and 
later,  on  the  same  day,  defendant  remits  to  cover  sig-ht 
draft,  and  writes  reg-arding- the  other  draft,  "We  enter," 
with  no  intimation  whatever  that  the  time  draft  would 


136  BILLS  OF  LADING  [vOL  I 

Oxford  Lake  Line  v.  First  Nat.  Bank  of  Pensacola 

not  be  accepted,  although  it  had  theu  been  dishonored, 
and  the  bill  of  lading  delivered.  Neither  was  there 
the  slightest  intimation  in  this  letter  or  telegram 
that  the  bill  of  lading  had  been  surrendered,  or  that 
•defendant  had  assumed  to  change  the  contract  between 
plaintiif  and  the  terminal  company,  and  the  expressions 
''not  yet  accepted,"  and  "We  enter."  relative  to  the 
time  draft,  were  calculated  to  convey  the  impression 
that  the  draft  would  be  accepted,  although  defendant 
then  knew  it  would  not.  Under  these  circumstances 
the  acceptance  of  ihe  proceeds  of  the  sight  draft 
would  not  become  the  basis  of  a  claim  of  ratification, 
for  plaintiff  then  had  no  knowledge  of  an}^  departure 
from  instructions  by  the  defendant,  but,  on  the  contrar}^ 
had  every  reason  to  suppose  that  they  were  being  com- 
plied wdth.  The  plea  alleges  that  defendant  returned 
the  unaccepted  draft  to  the  Anniston  bank  on  the  8th 
of  August,  and  that  on  the  12th  it  notified  that  bank 
„,   ,.  of  the  refusal    of  the   terminal   company  to 

accept  the  time  draft,  and  of  defendant's 
consequent  action  in  surrendering  the  bill  of  lading 
without  such  acceptance;  but  it  is  nowhere  alleged 
that  defendant  or  any  one  else  ever  informed  plaintiff 
at  any  time  that  the  bill  of  lading  w^as  surrendered 
upon  the  understanding  that  the  amount  of  the  balance 
due  under  plaintiff's  contract  with  the  terminal  com- 
pany was  to  be,  not  the  definite  amount  to  be  evidenced 
by  the  time  draft,  but  such  amount  only  as  might  be 
determined  upon  a  future  adjustment.  This  was  a  very 
material  matter  for  the  plaintiff  to  know  in  determin- 
ing whether  it  would  ratif}^  what  its  agent  had  assum- 
ed to  do  for  it.  Plaintiff  might  well  ratify  the  release 
of  its  security,  vh.  the  delivery  of  the  property  to  the 
terminal  company,  without  requiring  as  a  prerequisite 
the  acceptance  of  the  time  draft,  looking  to  its  remedy 
upon  the  original  contract,  which  would  have  been 
ample-to  secure  the  full  amount  evidenced  bv  the  time 
draft  if  the  property  had  been  inspected  and  approved 
by  the  persons  named  in  the  contract;  while  it  might 
-very    promptly  have    repudiated  the  unauthorized  acts 


B  CAS]  BIIvLS  OF  LADING  137 

Notes 

of  its  ag-ent  had  it  known  that  such  acrent  had  not  only 
released  its  security,  but  had  actually  g-iven  the  termi- 
nal company  an  advantaofe,  by  leaving"  the  balance  due 
to  be  ascertained,  not  in  accordance  with  the  contract, 
but  upon  some  future  adjustment.  Consequently, 
plaintiff  did  not  ratify  defendant's  acts  by  retaining- the 
proceeds  of  the  sig^ht  draft,  in  ig-norance  of  this  mater- 
ial fact.  There  are  none  of  the  elements  of  an  estoppel 
set  up  in  this  plea,  as  contended  by  the  defendant,  and 
an  essential  element  of  ratification  is  wanting".  We 
are  therefore  of  opinion  that  the  demurrers  to  plain- 
tiff's replications  should  have  been  overruled. 

The  judg"ment  is  reversed,  with  directions  to  the 
circuit  court  to  enter  an  order  overruling"  the  demur- 
rers to  plaintiff's  replications,  and  for  such  further 
proceeding's  as  may  be  conformable  to  law. 


NOTES. 


Bills  of  Lading — Surrender  before  Payment  of  Draft. — Where  the 
consig-nor  has  delivered  a  bill  of  lading  with  draft  attached,  it  is 
presumed  that  the  bill  is  given  as  securitv  for  the  acceptance  of 
the  draft.  Dovvs  v.  National  Exch.  Bank,"91  U.  S.  618.  Unless  it 
is  expressly  stipulated  that  it  is  given  as  security  for  the  collection. 
Schuchardt  i'.  Hall,  36  Md.  590;  People's  Nat.'Bank  v.  Stewart,  3 
Pugs.  &  Bur.  (N.  B.)  268. 

Therefore  if  the  draft  is  accepted  by  the  consignee,  the  pledgee, 
in  the  absence  of  other  instruction  by  the  consignor,  may  surrender 
the  bill.  National  Bank  v.  Merchants,'  etc.,  Bank,  91  U.  S.  92  ; 
Cayuga  Co.  Nat.  Bank  z'.  Daniels,  47  N.  Y.  631  ;  Marine  Bank  v. 
Wright,  48  N.  Y.  1  ;  Mears  z-.  Naples,  4  Houst.  (Del.)  62  ;  Lanfear  v. 
Blossman,  1  La.  Ann.  148  ;  Security  Bank  i'.  Luttgen,  29  Minn.  363  ; 
Schuchardt  z'.  Hall,  36  Md.  590  ;  Wis.  M.  &  F.  Ins.  Co.  v.  Bank  of 
B.  N.  A.,  21  U.  C.  Q.  B.  284  ;  Clark  :'.  Bank  of  Mont.,  13  Grant's  Ch. 
(Can.)  211;  Goodenough  v.  City  Bank,  10  U.  C.  C.  P.  51. 

In  National  Bank  z'.  Merchants'  Nat.  Bank,  91  U.  S.  92,  the  court 
by  Stkong,  J.,  said  :  "We  feel  justified  in  saj'ing  that,  in  our  opinion, 
no  respectable  case  can  be  found  in  which  it  has  been  decided  that 
when  a  time  draft  has  been  drawn  against  a  consignment  to  order, 
and  has  been  forwarded  to  an  agent  for  collection  with  the  bill  of 
lading  attached,  without  any  further  instructions,  the  agent  is  not 
justified  in  delivering  over  the  bill  of  lading  on  the  acceptance  of 
the  draft." 

There  is  in  England  a  custom  to  hold  the  bill  of  lading  until  pay- 
ment of  the  draft,  but  it  is  not  encouraged.  Coventry  z'.  Gladstone, 
L.  R.,  4  Eq.  493  ;  Gurney  z'.  Behrend,  3  El.  &  Bl.  622.' 

Where  the  consignor  has  given  instruction  as  to  the  surrender  of 


138  BILLS  OF  LADING  [vOL  1 

Notes 

the  bill,  the  pledgee  must  be  guided  thereby.  Dows  z'. National  Exch. 
Bank,  91  U.  S.  618  ;  Stollenwerck  v.  Thatcher,  115  Mass.  224  ;  Pease 
V.  Gloahee,  L.  R.,  1  P.  C.  219  ;  Gurney  v.  Behrend,  3  El.  &  Bl.  622. 

Parol  evidence  is  admissible  to  show  an  agreement  between  the 
consignor  and  pledgee  that  the  bill  of  lading  should  not  be  delivered 
to  the  consignee  until  the  payment  of  the  draft.  Security  Bank  v. 
Luttgen,  29"Minn.  363. 

Principal  and  Agent — Duty  of  Agent  Where  Authority  is  Ambigu- 
ous.— Where  the  authoritj-  is  ambiguous  and  capable  of  two  con- 
structions, it  should  be  construed  according  to  the  usual  course  of 
dealing  in  such  matters.     Pole  v.  Leask,  28  Beav.  574. 

But  if  the  agent  has  bona  fide  and  in  good  faith  adopted  and 
acted  upon  one  construction,  it  will  bind  the  principal.  See 
Brown  v.  M'Gran,  14<  Pet.  (U.  S.)  480;  Minnesota  Linseed  Oil 
Co.  ('.  Montague,  65  Iowa  67;  Mattocks  v.  Young,  66  Me.  459; 
Foster  v.  Rockwell,  104  Mass.  167  ;  Mechanics'  Bank  v.  Merchants' 
Bank,  6  Met.  (Mass.)  13  ;  Mann  v.  Laws,  117  Mass.  293  ;  Johnson  v. 
Jones,  4  Barb.  (N.  Y.)  369  ;  Winnie  v.  Niagara  F.  Ins.  Co.,  91  N.  Y. 
185  ;  Bessent  v.  Harris,  63  N.  Car.  542  ;  Longmire  v.  Herndon,  72  N. 
Car.  629. 

The  principal  should  give  his  instructions  in  clear  and  unambig- 
uous terms,  and  is  himself  responsible  for  anj-  error  arising  from 
ambiguous  instructions.     Ireland  i'.  Livingston,  L.  R.  5  H.  L.  416. 

Same — Fidelity  to  Instructions. — Where  an  agent  fails  or  refuses 
to  follow  the  instructions  of  his  principal,  the  latter  may  hold  him 
liable  for  any  loss  or  damage  resulting.  Sawyer  v.  Mayhew,  51 
Me.  398;  Amory  v.  Hamilton,  17  Mass.  103  ;  Thompson  v.  Stewart, 
3  Conn.  172,  8  Am.  Dec.  168;  Austill  v.  Crawford,  7  Ala.  335  ;  Short 
t/.  Skipwith,  1  Brock.  (U.  S.)  103;  Hasselman  v.  Carroll,  102  Ind. 
153.  And  see  Heinemann  v.  Heard,  50  N.  Y.  27  ;  Milwaukee  County 
V.  Hackett,  21  Wis.  613;  Rundle  v.  Moore,  3  Johns.  Cas.    (N.  Y.)   36. 

It  is  his  first  duty  to  adhere  faithfully  to  his  instructions  in  all 
cases  to  which  they  can  be  properly  applied,  and  if  he  neglects, 
exceeds,  or  violates  them,  he  is  responsible  for  all  losses  which  are 
the  natural  consequence  of  his  acts.  Whitney  v.  Merchants'  Union 
Express  Co.,  104  Mass.  152,  6  Am.  Rep.  207  ;  Fuller  v.  Ellis,  39  Vt. 
345,  94  Am.  Dec.  327  ;  Ward  v.  Warfield,  3  La.  Ann.  468. 

And  the  fact  that  the  agent  intended  to  promote  the  principal's 
interest  will  not  exonerate  him.  Rechtscherd  v.  Accommodation 
Bank,  47  Mo.  181;  Hardeman  v.  Ford,  12  Ga.  205;  Ward  v.  Warfield, 
3  La.  Ann.  468;  Ledoux  v.  Goza,  4  La.  Ann.  160;  Lowe  v.  Bell,  6  La. 
Ann.  28;  Merritt  v.  Wright,  19  La.  Ann.  91;  Holmes  v.  Misroon,  3 
Brev.  (S.  Car.)  209;  Coker  v.  Ropes,  125  Mass.  577. 

If  the  instructions  be  free  from  ambiguity,  and  are  positive  and 
unqualified,  they  must  be  rigidl3'  obeyed,  if  it  be  practicable;  and 
no  motive  connected  with  the  interest  of  the  principal,  however 
honestly  entertained  or  wisely  adopted,  can  excuse  a  breach  of 
them.     Courcier  v.  Ritter,  4  Wash.  (U.  S.)  549. 

Same — Ratification. — Knowledge  of  all  material  facts  and  circum- 
stances is  an  essential  element  to  an  effective  ratification  ;  without 
such  knowledge  the  adoption  of  the  acts  of  an  unauthorized  agent, 
or  one  who  has  exceeded  his  authority',  will  not  bind  the  principal  ; 
but  on  the  contrary,  if  he  has  given  his  assent  while  in  ignorance 
of  the  facts  of  the  case,  he  may,  on  being  informed,  disavow  the- 
unauthorized  transaction. 


B  CAS]  BILLS  OF  LADING  139 

Notes 

£'«^/««a'.— Fitzgerald  z'.  Dressier,  7  C.  B.  N.  S.  374,  97  E.  C  L. 
374  ;  Lewis  v.  Read,  13  M.  &  W.  834. 

Uyiited  5"/'a/<-5.— Owings  v.  Hull,  9  Pet.  (U.  S.)  607  ;  Rust  v.  Eaton, 
24  Fed.  Rep.  830  ;  Wheeler  v.  Northwestern  Sleigh  Co.,  39  Fed.  Rep. 
347;  Bosseau  v.  O'Brien,  4  Biss.  (U.  S.)  395;  Pacific  Rolling  Mill 
Co.  V.  Dayton,  etc.,  R.  Co.,  7  Sawy.  (U.  S.)  61. 

Alabama. — Wheeler  v.  McGuire,  86  Ala.  398  ;  Simon  v.  Johnson 
(Ala.,  1895),  16  So.  Rep.  884. 

California. — Dean  v.  Bassett,  57  Cal.  640;  Dupont  v.  Wertheman, 
10  Cal.  354;  Billings  v.  Morrow,  7  Cal.  171,  68  Am.  Dec.  235  ;  Miller 
V.  Board  of  Education,  44  Cal.  166. 

Colorado.— ^i&X^  v.  Small,  17  Colo.  386. 

Georgia. — Turner  v.  Wilcox,  54  Ga.  593;  De  Vaughn  v.  McLeroy, 
82  Ga.  687  ;  Hardeman  v.  Ford,  12  Ga.  205  ;  New  Ebenezer  Assoc,  v. 
Cress  Lumber  Co.,  89  Ga.  125  ;  Mapp  v.  Phillips,  32  Ga.  72. 

Illinois.— 'Kerr  v.  Sharp,  83  111.  199  ;  Stein  v.  Kendall,  1  111.  App. 
101;  Mathews  z'.  Hamilton,  23  111.470;  Reynolds?'.  Ferree,  86  111. 
570;  Proctor  v.  Tows,  115  111.  138;  Bensley  v.  Brockway,  27  111. 
App.  410. 

Iowa. — Roberts  i'.  Rumlev,  58  Iowa  301  ;  Tidrick  v.  Rice,  13  Iowa 
214;  White  v.  Morgan,  42  Iowa  113  ;  Potter  v.  Harvey,  30  Iowa  502  ; 
Beebe  v.  Equitable  Mut.  L.,  etc.,  Assoc,  76  Iowa  129;  Eggleston  v. 
Mason,  84  Iowa  630. 

Kansas. — Bohart  z'.  Oberne,  36  Kan.  284;  St.  John,  etc.,  Co.  v. 
Cornwell,  52  Kan.  712. 

A>;//'/^f/(',y.— Fletcher  v.  Dysart,  9  B.  Mon.  (Ky.)  413. 

Louisiana. — Delaney  v.  Levi,  19  La.  Ann.  251  ;  Mummy  v.  Hag- 
gerty,  15  La.  Ann.  268. 

Maine. — Bryant  v.  Moore,  26  Me.  84,  45  Am.  Dec.  96  ;  Morrell  v. 
Dixfield,  30  Me.  157  ;  Thorndike  v.  Godfrey,  3  Me'.  429. 

Maryland.— V>-a.x\no\\  v.  Warfield,  42  Md.22  ;  White  :'.  Davidson,  8 
Md.  169,  63  Am.  Dec.  699  ;  Hoffman  Steam  Coal  Co.  v.  Cumberland 
Coal,  etc.,  Co.,  16  Md.  456,  77  Am.  Dec.  311  ;  Busby  v.  North  Amer- 
ica. L.  Ins.  Co.,  40  Md.  588,  17  Am.  Rep.  634  ;  Adams  Express  Co.  v. 
Trego,  35  Md.  47. 

Massachusetts. — Manning  v.  Leland,  153  Mass.  510  ;  Chaff'ee  v. 
Blaisdell,  142  Mass.  538  ;  Murray  v.  C.  N.  Nelson  Lumber  Co.,  143 
Mass.  250;  Thacher  v.  Pray,  113  Mass.  291;  Dickinson  v.  Conway, 
12  Allen  (Mass.)  487;  Combs  v.  Scott,  12  Allen  (Mass.)  493;  Mclii- 
tyre  v.  Park,  11  Gray  (Mass.)  102,  71  Am.  Dec.  690. 

Michigan. — Hurley  v.  Watson,  68  Mich.  531. 

iilinnesota. — Woodbury  v.  Earned,  5  Minn.  339;  Humphrey  v. 
Havens,  12  Minn.  298. 

Missisippi. —BRker  v.  Byrne,  2  Smed.  &  M.  (Miss.)  193;  Meyer 
V.  Baldwin,  52  Miss.  263. 

Missou7-i. — Hyde  v.  Larkin,  35  Mo.  App.  366  ;  Steunkle  z>.  Chicago, 
etc.,  R.  Co.,  42  Mo.  App.  73. 

Nebraska.— Difttz  V.  City  Nat.  Bank,  42  Neb.  584;  Holm  v.  Ben- 
nett, 43  Neb.  808. 

Nezv  Hampshire. —Gon\&  v.  Blodgett,  61  N.  H.  115;  Hovey  v. 
Brown,  59  N.  H.  114  ;  Grant  v.  Beard,  50  N.  H.  129. 

New  Jersey.— Gnlicyi  v.  Grover,  33  N.  J.  L.  463,  97  Am.  Dec.  728; 
Titus  z-.  Cairo,  etc.,  R.  Co.,  46  N.  J.  L.  393;  Dowden  v.  Cryder,  55 
N.  J.  L.  329  ;  Dugan  v.  Lyman  (N.  J.  Eq.,  1895),  23  Atl.  Rep.  657. 

New  3Iexico.—K.ivchn&v  v.  Laughlin  (N.  Mex.,  1892),  28  Pac. 
Rep.  505. 


140  OFFICERS  [vol,  I 

Dickson  v.  Baker 

New  York. — Keeler  v.  Salisbury,  33  N.  Y.  648  ;  Condit  v.  Baldwin, 
21  N.  Y.  219,  78  Am.  Dec.  137.;  Rowan  v.  Hyatt,  45  N.  Y.  138;  Sey- 
mour V.  WyckofF.'lO  N.  Y.  213  ;  Bell  v.  Day,  32  N.  Y.  165  ;  Thompson 
V.  Craig,  16  Abb.  Pr.  N.  S.  (N.  Y.  Supreme  Ct.)  29  ;  Brass  v.  Worth, 
40  Barb.  (N.  Y.)  648;  Roach  v.  Coe,  1  E.  D.  Smith  (N.  Y.),  175; 
Hoffman  v.  Living-ston,  46  N.  Y.  Super.  Ct.  552  ;  Craighead  v.  Peter- 
son, 72  N.  Y.  279,  28  Am.  Rep.  150  ;  Ritch  v.  Smith,  82  N.  Y.  627  ; 
People  V.  Schuyler,  17  Hun    (N.  Y.)  106. 

Pennsylvania. — Pittsburgh,  etc.,  R.  Co.  v.  Gazzam,  32  Pa.  St.  340; 
Zoebisch  v.  Rauch,  133  Pa.  St.  532  ;  Merrick  Thread  Co.  v.  Philadel- 
phia Shoe  Mfg.  Co.,  115  Pa.  St.  314  ;  Moore  v.  Patterson,  28  Pa.  St. 
505. 

Tennessee. — Williams  :'.  Storm,  6  Coldw.  (Tenn.)  203. 

Texas. — Vincent  z'.  Rather,  31  Tex.  77,  98  Am.  Dec.  516  ;  Battaglia 
V.  Thomas,  5  Tex.  Civ.  App.  563. 

F<?/-wo«/.— Saville  v.  Welch,  58  Vt.  683. 

Wisconsin. — Dodge  v.  McDonnell,  14  Wis.  553  ;  JSi\.n?L  Ins.  Co.  v. 
North  Western  Iron  Co.,  21  Wis.  458. 

"No  doctrine  is  better  settled,  both  upon  principle  and  authority, 
than  this  :  that  the  ratification  of  an  act  of  an  agent  previously 
unauthorized  must,  in  order  to  bind  the  principal,  be  with  a  full 
knowledge  of  all  the  material  facts.  If  the  material  facts  be  either 
suppressed  or  unknown,  the  ratification  is  treated  as  invalid, 
because  founded  in  mistake  or  fraud."  Per  Story,  J.,  in  Owings 
V.  Hull,  9  Pet.  (U.  S.)  607, 


Dickson  et  al. 


Baker  ct  al. 

{Supi-emc  Court  of  I\Tinnesola,  Jan.  s,  i8gg.) 

Savings  Banks — Trustees — Depositors.* — The  trustees  of  a  sav- 
ings association  occupy  a  fiduciar}-  relation  to  its  depositors. 

Bartering  Office  for  Notes. — An  agreement  by  a  trustee,  for  a 
consideration  moving  to  himself,  to  secure  the  election  of  another  to 
the  oflRce  of  trustee,  constitutes  a  breach  of  trust,  and  is  void  on 
grounds  of  public  policy  ;  and  a  promissory  note  given  for  such  is 
void,  being  foitnded  on  an  illegal  consideration. 

Same — Knowledge  of  Officers — Validity  of  Notes. — In  this  case  the 
trustee  took  the  notes,  given  in  consideration  of  sitch  agreement, 
pa3'able  directly  to  the  association,  and  then  transferred  them  to  it  ; 
the  trustees   who  accepted  them  having  full  knowledge  of  the  con- 

*See  note  at  end  of  case. 


B  CAS]  OFFICERS  141 

Dickson  v.  Baker 

sideration  for  which  they  were  given.  Held,  that  the  association 
stood  in  no  better  po&ition  than  the  trustee  to  whom  they  were 
g-iven. 

Assignments— Illegal  Preferences.— Except  as  otherwise  provided 
by  statute  as  to  conveyances  by  the  debtor  in  fraud  of  his  creditors, 
and  as  to  unlawful  preferences  by  him  of  one  creditor  over  others, 
an  assignee  in  a  general  assignment  for  the  benefit  of  creditors 
stands  in  the  shoes  of  his  assignor,  and  what  would  be  a  defense 
against  the  latter  will  be  a  good  defense  against  the  former. 

Estoppel. — Held,  also,  that  upon  the  facts  of  this  case  the  maker 
of  the  notes  was  not  estopped  to  set  up  their  illegality  as  a  defense 
to  a  suit  by  the  assignee  of  the  association,  or  by  receivers  appointed 
bj'  the  court  in  place  of  the  original  assignee. 

(Syllabus  by  the  Court.) 

AppeaTv  by  defendant  from  Ramsey  county  district 
court.     Reversed. 

J.  J.  McCaffert}\  H.  Weiss,  and  Samuel  Morrison, 
for  appellant. 

Timothy  D.  Sheehan  and  Frederick  N.  Dickson,  for 
respondents. 

MiTCHEEE,  J.  The  Minnesota  Savings  Bank  of 
St.  Paul  was  a  saving's  association  org-anized  under 
Gen.  Laws  1867,  c.  23.  William  F.  Bickel  was  its 
vice  president,  g-eneral  manag-er,  and  one  of  case  stated 

its  five  trustees.  On  January  3,  1895, 
Bickel  and  the  defendants  entered  into  a  written  agree- 
ment whereby,  in  consideration  of  $22,000  to  be  paid 
by  the  latter  to  the  former,  Bickel  ag-reed  "to  assig-u, 
set  over,  transfer,  sell,  and  deliver  to  the  defendants 
an  undivided  one-half  interest  in  and  to  the  charter, 
franchises,  business,  g-ood  will,  and  profits  of  the  Min- 
nesota Saving-s  Bank,  and  to  effect  and  cause  to  be 
effected  whatever  proceeding's  and  things  should  be  nec- 
essary to  be  had  and  done  to  give  and  deliver  to  the 
defendants  said  full  undivided  half  interest  above  de- 
scribed, and  to  place  the  org-anization  of  the  board  of 
trustees  of  said  corporation  in  such  condition  as  shall 
give  effect  to  said  ag^reement."  The  defendants,  on 
their  part,  ag-reed  "to  nominate  their  proportion  of  said 
board  of  trustees";  and  it  was  mutually  agreed  that 
"the     nomination,   election,   and    qualification    thereof 


142  OFFICERS  [vol  I 

Dickson  v.  Baker 

[defendants'  proportion  of  the  board  of  trustees]  should 
constitute  an  acceptance  and  fulfillment  of  the  contract' ' 
on  part  of  Bickel.  As  the  consideration  for  this  con- 
tract, the  defendants  executed  and  delivered  to  Bickel 
their  promissory  notes  for  $22,000.  Instead  of  taking- 
these  notes  payable  to  himself,  Bickel  caused  them  to 
be  made  payable  to  the  order  of  the  saving's  bank.  He 
then  turned  them  over  to  the  bank,  and  on  receipt  of 
them  the  board  of  trustees  transferred  or  surrendered 
to  him  certain  assets  of  the  bank  (of  the  amount  or 
value  of  which  tkere  is  no  evidence),  which  he  has  re- 
tained and  appropriated  to  his  own  use.  These  notes, 
and  notes  given  in  renewal  of  some  of  them,  were  en- 
tered and  carried  on  the  books  of  the  bank  as  part  of 
its  bills  receivable  up  to  and  at  the  time  the  bank  failed 
and  closed  its  doors,  on  January  18,  1897.  At  a  meet- 
ing- of  the  board  of  trustees  held  a  few  daj's  after  the 
notes  were  executed,  and  on  the  next  day  after  Bickel 
had  turned  them  over  to  the  bank,  at  the  instance  of 
Bickel  two  of  their  number  resigned,  and  the  two  de- 
fendants were  elected  trustees  in  their  places.  The 
defendants  accepted  and  qualified  and  acted  as  trustees, 
to  the  extent,  at  least,  of  occasionally  attending-  the 
meeting's  of  the  board,  until  the  bank  failed.  For  seven 
or  eig-ht  months  in  1895  the  defendant  Kittson  was  on 
the  pay  roll  of  the  bank  as  a  salaried  employee;  his 
duties  being-,  nominally,  at  least,  to  look  after  the  real 
estate  belonging-  to  the  bank.  There  was  evidence 
tending-  to  prove  that  the  defendant  Kittson  knew  that 
the  notes  were  held  by  the  bank  as  part  of  its  assets, 
but  there  was  no  evidence  that  he  knew  that  the  bank 
had  ever  parted  with  anything-  of  value  for  them.  He 
never  paid  an3'thing-  on  them,  but  on  one  occasion  gave 
a  renewal  note  for  one  of  them,  and  on  another  gave  a 
note  for  accrued  interest  on  the  orig-inal  notes.  He 
never  took  any  steps  to  rescind  the  agreement  with 
Bickel,  or  to  recover  his  notes,  and,  so  far  as  appears, 
never  repudiated  his  liability  upon  them,  until  this  ac- 
tion was  commenced.  On  January  18,  1897,  the  bank 
closed  its  doors,   and  executed  to  one  William  Bickel 


B  CAS]  OFFICERS  143 

Dickson  V.  Baker 

an  assig"mnent  of  all  its  assets  for  the  benefit  of  its 
creditors.  The  assig-nee  having-  resig-ned,  the  court 
appointed  the  plaintiffs  receivers  in  his  place;  and  they 
broug-ht  this  action  upon  the  notes,  but  Kittson  alone 
was  served  with  process,  or  appeared  in  the  action. 
He  interposed  as  defenses  his  incapacity  to  contract, 
by  reason  of  drunkenness,  false  and  fraudulent  rep- 
resentations by  Bickel  and  his  co-defendant,  Baker, 
and  the  want  of  an}^  g-ood  or  valid  consideration  for  the 
notes.  We  find  it  unnecessary  to  consider  any  of  these 
defenses,  except  the  last.  When  the  evidence  closed, 
each  party  requested  the  court  to  direct  a  verdict  in 
their  or  his  favor,  whereupon  the  court  directed  a  ver- 
dict in  favor  of  the  plaintiffs,  to  which  the  defendant 
excepted,  and,  after  verdict,  moved  the  court  for  judg"- 
ment  notwithstanding-  the  verdict,  and,  in  case  that 
was  denied,  for  a  new  trial.  The  court  refused  to 
g-rant  either,  and  thereupon  the  defendant  appealed. 
1.  In  view  of  the  fact  that  a  saving-s  association  or- 
g-anized  under  the  act  of  18b7  has  no  capital  stock, and 
that  the  nature  of  its  business  and  the  extent  of  its 
powers,  as  fixed  by  statute,  are  "to  receive  deposits 
and  invest  the  same  for  the  use,  interest,  and  advant- 
ag-e  of  the  depositors,"  and  the  further  fact  that  nei- 
ther the  corporate  franchise  nor  the  office  of  trustee  is 
assig-nable,  it  may  admit  of  argument  as  to  what,  if 
any,  rig-ht  of  property  a  trustee  has  in  either  the  fran- 
chises or  the  assets  of  such  an  association,  which  he 
can  assig-n.  But  assuming-,  as  we  shall,  that  there 
was  a  consideration  for  the  notes,  it  was  clearly  an  il- 
legfal  one,  on  the  g-round  that  it  was  ag-ainst  public  pol- 
icy. While,  on  the  face  of  the  written  ag-reement, 
Bickel  ag-rees  to  assig^n  and  transfer  to  Kittson  and 
Baker  an  undivided  half  interest  in  the  bank,  yet, upon 
reading-  the  whole  instrument,  the  sole  and  only  means 
by  which  this  was  to  be  accomplished  was  by  bring-- 
ing-  about  a  chang-e  in  the  org-anization  of  the  board  of 
trustees.  Hence,  when  reduced  to  its  last  analysis, the 
sole  consideration  for  these  notes  was  Bickel's  ag-ree- 
ment   to  secure  the  election  of  Kittson  and    Baker,    or 


144  OFFICERS  [vol  I 

Dickson  v.  Baker 

those  whom  they  mitfht  desigfnate,  to  the  office  of 
trustees  of  the  bank.  The  agfreement  expressly  pro- 
vides that  this  should  constitute  a  fulfillaient  of  the 
contract  on  Bickel's  part.  This  was  clearly  an  illeg-al 
ag-reement.  The  office  of  trustee  of  an  as- 
saviiiss Banks-     sociation    of  this   kind  is  a  fiduciary  one,    of 

Trastees— Deposi-        ,  .,  rr\  t        •  i 

tors.  the  most  sacred  character.   The  incumbents 

of  such  an  office  are  trustees  for  the  deposi- 
tors. Their  fiduciary  relation  extends,  not  merely  to 
the  investment  of  deposits,  but  also  and  equally  to  the 
election  of  other  trustees,  who,  with  themselves,  are 
to  care  for  and  look  after  the  interests  of  depositors. 
It  is  a  part  of  their  trust  duty  to  exercise  this 
powder  of  election,  not  for  their  own  personal  ad- 
vantage, but  for  the  best  interests  of  depositors,  and 
to  see  to  it,  as  far  as  in  them  lies,  to  secure  the  high- 
est attainable  degree  of  integrity,  ability,  and  fidelity  for 
the  management  of  the  affairs  of  the  association.  No 
greater  breach  of  trust  can  be  conceived  of  than  that  of 
trustees  of  such  associations  selling  or  bartering  the 
office  of  trustees  for  their  own  private  gain,  without 
regard  to  the  interests  of  their  cestuis  que  trustoit,  the 
depositors.  And  there  could  not  well  be  any  more 
flagrant  example  of  this  than  is  disclosed  by  the  record 
in  this  case,  when  Bickel,  for  his  own  private  gain, 
with  the  consent  and  assistance  of  his  col- 
HMVor'To/es!  leagues,  secured  the  election  to  the  office  of 
trustee  of  a  dissipated  spendthrift  of  the 
age  of  21  years,  without  either  business  ability  or  ex- 
perience, and  of  another  \vho  must  have  been  almost 
equally  unfit  for  the  position  ;  for,  from  what  appears 
in  the  record,  he  must  have  been  either  as  devoid  of 
business  sense  and  judgment  as  Kittson,  or  else  the 
fraudulent  accomplice  of  Bickel  to  inv^eigde  Kittson  into 
this  most  foolish  and  improvident  bargain.  The  con- 
tract between  Bickel  and  the  defendants  was  manifestly 
void  on  grounds  of  public  policy,  and  the  notes  were 
equally  void  because  given  for  an  illegal  consideration. 
2.  The  bank  stood  in  no  better  position  than  Bickel. 
did  not  occupy  the   position  of  an  innocent  indorsee. 


B  CAS]  OFFICERS  145 

Note 

for  the  notes  were  made  payable  directly  to  it.     More- 
over, the  evidence  discloses  that  the  trustees 
knew  all  about  the  agreement  between  Bickel  jr^^j^p'^rs-vand'' 
and  the  defendants,  and  what  the  considera-  ity  of  Notes, 
tion    for   the    notes    was,    before    they  took 
them  from  Bickel.     Knowing-  the  facts,  it  is  immaterial 
that  they  may  not  have  understood  the  law  applicable 
to  those  facts.    The  plaintiffs,  as  receivers,  stood  in  the 
shoes  of  the  original  assignee  ;  and  an  assignee  for  the 
benefit  of  creditors    stands  in  no    better  position   than 
his  assignor,  and  what  would  be  a  defense  against  the 
latter  will  be  a  good    defense   against    the  former,  ex- 
cept so  far  as  his    rights  and    powers   are  changed  by 
statute.     Our  statute  provides  that,  in  general  assign- 
ments for  the  benefit  of  creditors,  the  assignee  repre- 
sents the  rights  of  creditors,  as  against  all 
transfers  of  property   by   the   debtor  which     Assignnients— 
would  be  held  to  be  fraudulent  or  void  as  to     ences. 
creditors  ;  and    the    insolvent   act   of     1881 
gives  an  assignee  or  receiver  the  right  to  bring  an  ac- 
tion to  avoid    an   unlawful    preference   of  one    creditor 
over  another.     Otherwise   their  rights  and  powers,  so 
far  as  here  material,  are  the    same  as  at    common  law. 
There  is    nothing  in  the   facts  of    this    case  to  bring  it 
within  either    of  these    statutory  provisions.     Neither 
is  there   anything  in    the  facts  upon  which 
the    doctrine   of   equitable    estoppel  can    be 
successfully    invoked.      We  have   set  out  in  our  state- 
ment of  facts  everything  which  could  have  any  possible 
bearing  upon  that  subject.     Order  reversed,  and  cause 
remanded,  with  directions  to  the  court  below  to  render 
judgment  in    favor  of    the    defendant    notwithstanding" 
the  verdict. 


NOTE. 

Trustees  of  Savings  Bank. — In  Hun  v.  Cary,  82  N.  Y.  65,  37  Am. 
Rep.  S^-G,  it  was  held  that  the  relation  existing-  between  the  sav- 
ings bank  and  its  trustees  was  that  of  principal  and  ag-ent.  while 
the  relation  between  trustees  and  the  depositors  was  similar  to 
that  of  trustee  and  cestui  que  trust.  See  also  Savings  Inst.  v-. 
Makin,  23  Me.  360. 

B  CAS— 10 


146  ULTRA  VIRES  [vOL  I 

M.  V.  Monarch  Co.  v.  Farmers'  &  Drovers'  Bank 


M.  V.  Monarch  Co.  el  al. 

V. 

Farmers'  &  Drovers'  Bank. 

{Court  of  Appeals  of  Kentucky,  Jan.  26,  iSgg.) 

Corporation — Power  to  Become  Surety. — With  the  exception  of 
trust  and  g-uaranty "companies,  as  a  g^eneral  rule,  no  corporation 
has  the  power  to  become  a  suret_v  for  another. 

Notice  of  Protest*. — Where  it  appears  that  a  party  received  a 
notice  of  protest  in  time,  it  is  immaterial  whether  he  received  it 
throug-h  the  mail  or  by  personal  delivery. 

Bills — LegaJ  Capacity  of  Maker — Indorsers.* — An  indorser  of  a 
bill  of  exchange  impliedU'  guarantees  that  it  was  inade  bj'  a  compe- 
tent party. 

Appeal  by  defendants.  Reversed  as  to  appellant 
company. 

Walker  d:  Slack,  Fairlcigh  d:  Straus,  and  Little  & 
J^ittle,  for  appellants. 

Sxveeucy,  Ellis  d-  Szi-ee??ey,  for  appellee. 

Burnam,  J.  This  action  is  upon  a  bill  of  exchang-e 
accepted  by  Slack  &  Perkins,  drawn  by  the  M.  V. 
Monarch  Company,  and  indorsed  by  M.  V.  Monarch 
and  Mildred  Perkins.  Appellants,  Slack 
Sz  Perkins,  the  M.  V.  Monarch  Company, 
and  M.  V.  Monarch,  filed  a  joint  answer,  in  which 
joint  and  separate  defenses  are  made.  They  jointly 
alleg'e  and  plead  that  the  oblig"ation  sued  on  contains 
oisury,  and  ask  that  it  be  eliminated.  The  M.  V. 
Monarch  Company  and  M.  V.  Monarch  alleg'e  that  the 
Monarch  Company  is  a  private  corporation,  having-  the 
power  to  manufacture  and  sell  whiskey  and  such  other 
powers  as  are  incident  thereto  ;  that  it  has  no  power  to 
•become  the  accommodation  drawer  or  indorser  upon 
the  paper  of  any  other  person  or  corporation  ;  that  its 
name  was  sig-ned   as  drawer    to   the    bill  of   exchang-e 

*See  notes  at  end  of  case. 


B  CAS]  ULTRA  VIRES  147 

M.  V.  Monarch  Co.  v.  Farmers'  &  Drovers'  Bank 

sued  on,  as  a  mere  accommodation  for  Slack  &  Perkins, 
who  discounted  the  bill  with  plaintiff,  and  received  the 
entire  proceeds  arising-  therefrom  ;  that  the  sig-ning-  of 
the  name  of  the  M,  V.  Monarch  Company  as  drawer  of 
the  bill,  and  the  indorsement  of  same  by  M.  V.  Mon- 
arch, were  without  consideration,  and  that  this  fact 
was  known  to  the  plaintiff  at  the  time  it  discounted 
the  orig-inal  bill  and  at  the  time  it  accepted  each  bill 
in  renewal  thereof ;  that  at  the  date  of  the  maturity  of 
the  bill  sued  on  the  M.  V.  Monarch  Company  had  its 
business  ofGce  in  the  cit}^  of  Owensboro,  and  that  plain- 
tiff and  the  notary  public  who  protested  the  bill  knew 
this  fact ;  that  M.  V.  Monarch  had  his  office  in  Owens- 
boro, but  resided  outside  of  the  city  limits  ;  that  the 
notary,  at  6  o'clock  p.  m.  on  December  27,  1895,  the 
date  of  the  maturity  of  the  paper  sued  on,  placed  a  no- 
tice of  protest  in  the  post  office  at  Owensboro, addressed 
to  the  M.  V.  Monarch  Company,  and  also  a  notice  ad- 
dressed to  M,  V.  Monarch,  Owensboro,  Ky.  ;  that  by 
reason  of  these  notices  having-  been  deposited  in  the 
post  office  they  were  not  received  until  some  time  dur- 
ing- the  next  day, December  28,  1895, and  that  the  notices 
could  have  been  delivered  to  each  of  these  defendants 
on  the  day  of  the  maturity  of  the  bill,  at  their  respect- 
ive offices  ;  and  these  facts  are  pleaded  by  way  of  avoid- 
ance of  the  oblig-ation  sued  on.  Mildred  Perkins,  the 
last  indorser,  pleads  in  her  answer  that  she  was  a  mere 
accommodation  indorser  upon  the  bill  ;  that  the  indorse- 
ment of  the  M.  V.  Monarch  Company  was  /(//ra  n'res, 
and  that  they  are  not  bound  thereby  ;  and  by  reason 
thereof  she  claims  that,  under  the  statute,  she  is  released. 
A  g-eneral  demurrer  was  sustained  to  the  answers  of 
the  M.  V.  Monarch  Company,  M.,  V.  Monarch,  and 
Mildred  Perkins  as  to  all  the  defenses  relied  on  except 
that  of  usury  ;  and,  the  defendants  failing-  to  plead 
further,  a  judgment  was  rendered  ag-ainst  all  the  de- 
fendants for  the  debt  sued  on,  after  eliminating  the 
usury  it  contained  ;  and  we  are  asked  upon  this  appeal 
to  reverse  that  judgment,  on  the  g-round  that  the  court 
erred  in  sustaining-  the  demurrer  as  to  each  defense 
relied  on  by  defendants. 


148  ULTRA  VIRES  [voiv  I 

M.  V.  Monarch  Co.  v.  Fanners'  &  Drovers'  Bank 

We  will  consider  these  defenses  seriatim.  First,  is 
the  M.  V.  Monarch  Company  liable  as  an  indorser 
under  the  allegations  of  the  answer,  which,  upon  de- 
murrer, must  be  taken  as  true  ?  As  a  g-eneral  rule,  a 
corporation  has  no  power  to  enter  into  a  contract  of 
suretyship  or  g-uaranty,  or  otherwise  lend  its  credit  to 
another,  unless  such  contract  is  reasonably  necessary 
or  is  usual  in  the  conduct  of  its  business.  Ordinarily, 
the  simple  act  of  becoming-  surety  or  g-uarantor  for  the 
contract  ©r  debt  of  another  person  or  corporation  is  not 
within  the  implied  powers  of  a  corporation.  The  rea- 
son for  this  rule  is  that  such  a  contract  risks  the  capi- 
tal and  funds  of  the  corporation  in  an  enterprise  not 
contemplated  by  the  stockholders  in  subscribing-  for 
or  purchasing-  its  stock,  prejudices  the  rig-hts  of  its 
creditors,  and  exceeds  the  authority  conferred  by  its 
charter.  See  7  Am.  &  E^ng.  Enc.  Law  (2d  Ed.)  778. 
The  reason  for  this  rule  was  well  expressed  in  Tod  v. 
Land  Co.,  57  Fed.  51,  where  it  is  said  :  "First.  The 
corporate  funds  belong-  to  its  shareholders,  and,  by  the 
very  terms  of  the  law  creating-  it,  cannot  be  devoted  to 
any  other  purposes  than  those  indicated  by  its  charter. 
Such  oblig-ations  would  violate  the  fundamental  terms 
of  the  ag-reement  between  the  corporators  themselves. 
Second.  To  do  so  would  be  to  exercise  a  power  not 
conferred  by  the  state,  either  expressly  or  impliedly. 
The  state's  g-rant  of  the  corporate  franchise  is  for  the 
purposes  prescribed,  and  the  execution  of  such  oblig-a- 
tions would  be  beyond  the  power  conferred,  and  there- 
fore a  diversion  of  the  corporate  purposes  as  well  as 
of  the  corporate  funds."  Thompson,  in  his  Commen- 
taries on  the  law  of  Corporations  (section  5721),  says  : 
"With  the  exception  of  those  corporations — such  as 
trust  and  guaranty  companies — which  are  org-anized 
for  the  express  purpose  of  becoming  sureties  for  other 
persons  or  corporations,  and  with  other  ex- 
corporation-       ccptions   elsewhere    stated,  it    may  be    laid 

Power  to  Bftcoiii6  • 

Surety.  down,  as  a  general  rule,  that  no  corporation 

has  the  power,  by  any  form   of  contract  or 

indorsement,  to    become  a  g-uarantor   or   surety  for,  or 


II 


B  CAS]  ULTRA  VIRES  149 

M.  V.  Monarch  Co.  v.  Farmers'  &  Drovers'  Bank 

otherwise  leud  its  credit  to,  another  person  or  corpora- 
tion." And  in  section  5723,  in  assig-ning- the  reasons 
and  limitations,  he  says  :  "This  principle  is  designed 
for  the  preservation  of  the  funds  of  the  corporation, 
for  the  benefit  of  those  having-  an  interest  in  them,  by 
preventing-  them  from  being-  embarked  in  enterprises  not 
authorized  by  the  charter  or  g-overning-  statute.  Those 
persons  are  primarily  the  stockholders  as  long-  as  the  cor- 
poration continues  ag-oing-  concern,  and  it  is  their  rig-ht 
that  the  corporate  funds  shall  not  be  put  to  hazards  or 
embarked  in  an  undertaking- not  authorized  by  the  con- 
tract of  association.  If  the  doctrine  that  the  capital  of 
the  corporation  is  a  trust  fund,  for  the  security  of  its 
creditors,  is  any  more  than  an  empty  and  idle  collec- 
tion of  words,  then  the  principle  is  also  desig-ned  for 
the  security  of  the  creditors  of  the  corporation,  by 
preserving-  from  an  unauthorized  dissipation  a  fund 
which,  in  the  event  of  insolvency,  equity  impresses 
with  a  trust  in  their  favor."  There  are,  however,  some 
exceptions  to  this  g-eneral  rule,  and  in  a  number  of 
cases,  where  such  contracts  have  been  shown  to  be  of 
manifest  advantag-e  to  a  corporation,  the}^  have  been 
enforced.  See  4  Am.  &  Eng-.  Enc.  Law,  727-729; 
Fuld  V.  Brewing-  Co.  (Com.  PI.)  18  N.  Y.  Supp.  456; 
and  Holmes  v.  Willard  (N.  Y.  App.)  25  N.  ^.  1083. 
But  there  is  nothing-  in  the  alleg-ations  of  the  petition 
which  bring-s  the  M.  V.  Monarch  Company  within  the 
announced  exceptions  to  the  g-eneral  rule,  and  the 
court  erred  in  sustaining-  the  demurrer  to  the  plea  of 
ultra  vires  relied  on  by  the  corporation. 

The  next  question  presented  is,  was  M.  V.  Monarch 
entitled  to  a  personal  service  of  notice  of  protest,  and, 
if  so,  did  the  failure  of  personal  service  release  him, 
and  was  the  notice  g-iven  in  due  time?  In  Neal  v.  Tay- 
lor, 9  Bush,  384,  in  construing-  the  third  section  of  the 
act  of  January  16,  1864,  prescribing-  the  duties  of  no- 
taries public  in  protesting-  neg-otiable  paper  in  order 
to  fix  the  liability  of  the  parties  thereto,  this  court  said: 
^'It  was  evidently  intended  by  this  enactment  to  alter 
the  law  merchant  in  reg-ard  to  g-iving-  notice  of  the  pro- 


150  ULTRA  VIRES  [vol  I 

M.  V.  Monarch  Co.  v.  Farmers'  &  Drovers'  Bank 

test  of  commercial  paper,  but  the  act  itself  is  so  indefi- 
nite in  its  mandatory  clause  that  judicial  construction 
was  made  necessary  in  order  to  enable  notaries  to 
know  what  their  leg"al  duties  were  by  reason  of  its 
provisions.  The  act  required  the  notary,  when  he 
knows  the  place  of  residence  of  the  parties  to  the  bill, 
to  give  or  send  the  notices  to  them,  and  not  to  the  hold- 
er of  the  paper;  but  whether  he  is  to  deliver  the  no- 
tices in  person  or  send  them  by  mail  or  private  hands 
on  the  day  of  the"  protest,  or  the  next  day,  or  in  a  rea- 
sonable time,  is  nowhere  stated.  The  notary  is  left 
in  entire  ig-norance  as  to  the  obligation  it  imposes. 
This  court,  in  the  opinion  in  Todd  v.  E^dwards,  7  Bush, 
93,  was  enabled,  by  the  aid  of  the  law  merchant  in 
connection  with  the  act  in  question,  to  give  it  the  only 
reasonable  construction  to  which  it  was  susceptible, 
and  that  was:  'Where  parties  to  negotiable  paper  were 
entitled  to  notice  in  order  to  hold  them  liable,  and  lived 
in  the  same  town  or  city  where  protest  was  made, 
there  should  be  a  notice  in  person  delivered  by  the  no- 
tary, or  left  at  the  dwelling  or  business  house  of  the 
party  sought  to  be  charged.  The  law,  in  such  case, 
requires  that  this  notice  should  be  delivered  either 
on  the  day  of  dishonor  of  the  paper  or  before  the  ex- 
piration of  the  business  hours  of  the  succeeding  day.'  " 
And  in  Bondurant  v.  Everett,  1  Mete.  658,  this  court 
held  "that  where  the  party  sought  to  be  charged  as 
drawer  or  indorser  of  a  bill  lives  near  to,  but  not  in  or 
at,  the  place  of  dishonor,  and  the  post  office  at  that 
point  is  the  office  where  he  usually  receives  his  letters 
or  the  nearest  office  to  his  residence,  notice  must  be 
given  to  him  by  letter,  through  such  office."  There 
are  numerous  adjudications  holding  that  the  rule  as  to 
personal  notice  is  to  be  restricted  to  cases  where  the 
party  to  be  affected  by  the  notice  resides  within  the 
limits  of  the  city  or  town  in  which  the  note  is  protested, 
and  if  he  resides  in  the  country,  outside  of  those  limits, 
but  receives  his  mail  at  the  post  office  at  that  town,  a 
service  by  mail  is  sufficient.  See  Ransom  v.  Mack, 
38  Am.  Dec.  611.     But  it  seems  to  be  the  settled  rule 


B  CAS]  ULTRA  VIRES  151 

M.  V.  Monarch  Co.  v.  Farmers'  &  Drovers'  Bank 

that  the  holder  of  commercial  paper  is  not  required  ta 
g-ive  notice  of  dishonor  on  the  day  the  paper  is  pro- 
tested, -but  may  g"ive  notice  on  the  first  business  day 
thereafter,  and  such  notice  is  sufficient.  See  5  Am.  & 
Eng-.  Enc.  Law,  (2d  Ed.)  528,  and  2  Daniel,  Neg-. 
Inst.  84.  The  answer  of  appellant  shows  that  he  re- 
ceived the  notice  of  protest  of  this  paper  on 
the  first  business  day  after  it  was  protested, 
and  we  do  not  think  it  is  a  matter  of  any  importance 
whether  he  received  it  throug-h  the  mail  or  by  personal 
delivery  directly  from  the  hands  of  the  notary.  The 
fact  that  he  g-ot  the  notice  in  time  is  all  that  is  required. 
In  discussing- this  question,  2  Daniel,  Neg-.  Inst.  p.  56, 
says:  "If  the  part}^  receives  the  notice,  the  mere  man- 
ner of  its  transmission  is  wholly  immaterial.  A  per- 
sonal service  of  notice  is  ^ood  wherever  it  may  be  made, 
provided  it  be  done  in  proper  time.  At  an  improper 
place,  it  is  sufficient  if  it  reaches  the  party  for  whom 
it  was  intended  in  due  season.  And  so,  likewise,  if  it 
be  sent  by  mail,  where  the  parties  reside  in  the  same 
'place,  it  is  g-ood  if  it  duly  reaches  the  party  addressed. 
The  distinction  between  the  different  modes  of  g-iving- 
notice  is  this  :  Where  the  holder  and  indorser  reside  in 
different  places,  the  former,  if  he  deposits  the  notice 
in  the  post  office  in  due  season,  has  no  further  burden 
on  him  as  to  the  actual  receipt  of  it  by  the  latter  ;  but, 
where  both  parties  live  in  the  same  town,  the  sender 
of  the  notice  is  bound  to  show  that  it  was  actually  re- 
ceived by  the  indorser  in  due  season."  We  think  the 
law  was  fully  complied  with,  so  far  as  the  notice  is- 
concerned. 

The  last  question  to  be  considered  is  that  raised  by 
the  answer  of  Mildred  Perkins  ;  that  is,  can  she  escape 
liability  on  the  paper  because  the  act  of  the  corporation 
in  becoming-  a    drawer    of  the  bill  was  iiUra 
vires  1     We    think  not.     2  Rand.  Com.  Pa-r  Biiis-iej.'ai 
per,  §  /42,  says  :       1  he  indorser,  by  placing-  -imiorsers. 
his  name  on    the  back  of  al3ill  of  exchang-e, 
note,    or    check,     undertakes — First,    that  it  shall    be 
accepted  and  paid  according-  to  its  tenor,  on  due  present- 


152  ULTRA  VIRES  [vOL  I 

Notes 

ment  and  notice  of  dishonor  ;  second,  that  the  instru- 
ment, and  the  signatures  of  all  prior  parties  thereon, 
are  genuine  ;  third,  that  the  parties  to  it  are  competent 
to  contract;  fourth, that  the  instrument  is  valid  accord- 
ing;!^ to  purport;  fifth,  that  the  indorser  his  the  title 
and  rig-ht  to  transfer.  The  indorsement  of  a  bill  when 
delivered,  implies  a  warranty  or  promise  that  it  shall 
be  paid  on  condition  of  due  presentment  and  notice  of 
dishonor.  If  the  bill  is  payable  in  future,  he  under- 
takes that  he  will  pay  it  with  dimio-es,  if  the  drawee 
fails  on  presentment,  and  he  is  duly  notified  of  such 
failure."  Generally,  an  indorser  of  a  neg-otiable 
instrument  warrants  to  a  bona  fide  holder  the  existence 
of  every  essential  necessary  to  constitute  the  instrument 
a  valid  and  subsisting-  oblig-ation.  It  is  a  part  of  the 
contract  of  indorsement  that  the  paper  indorsed  has 
been  made  by  a  person  competent  to  contract  in  that 
form.  See  Archer  v.  Shea,  14  Hun,  493  ;  Kenworth}^ 
r.  Sawyer,  125  Mass.  28  ;  Ross  v.  Dixie,  7  U.  C.  Q.  B. 
414.  It  seems  clear,  from  the  authorities  on  this 
question,  that  the  liability  of  appellant  Mildred  Perkins 
is  not  affected  by  the  failure  of  the  M.  V.  Monarch 
Company  to  become  liable  upon  its  indorsement.  For 
the  reasons  indicated  herein  the  judg-ment  is  reversed 
upon  the  appeal  of  the  M.  V.  Monarch  Company,  and 
affirmed  as  to  the  other  appellants,  and  the  cause  is 
remanded  for  proceeding-s  consistent  with  this  opinion. 


NOTES. 

Notice  of  Dishonor — Service. — The  fact  that  a  notice  of  dishonor 
was  tuailed  to  one  dwelling-  in  the  same  town  is  immaterial  if  the 
notice  was  in  fact  received  in  due  time.  Hvslop  v.  Jones,  3  McLean 
(U.  S.)  96;  Hill  V.  Norvell,  3  McLean  (U.  S.)  583;  Spalding  v. 
Krutz,  1  Dill.  (U.  S.)  414  ;  Foster  v.  McDonald,  5  Ala.  376  ;  Grinman 
V.  Walker,  9  Iowa  425  ;  Cornett  v.  Hafer,  43  Kan.  60  ;  Cabot  Bank  v. 
Warner,  10  Allen  (Mass.)  522. 

Warrant  of  Indorser  as  to  Capacity  of  Antecedent  Parties. — It  is  a 
part  of  the  contract  of  indorsement,  that  the  paper  indorsed  has  been 
made  by  a  person  competent  to  contract  in  that  form.  Archer  v. 
Shea,  14  Hun  (N.  Y.)  493  ;  Kenworthy  v.  Sawyer.  125  Mass.  28  ;  Er- 
win  V.  Downs,  15  N.  Y.  575. 


B  CAS]  PROTEST  153 

Monarch  v.  Farmers'  &  Traders'  Bank 

Illustrations. — Althoug-h  a  note  g-iven  by  a  wife  to  her  husband  is 
void,  yet  if  it  be  indorsed  over  by  the  husband  as  between  hira  and 
the  indorsee,  it  is  good.  ilal3'  z'.  Lane,  2  Atk.  181  ;  Robertson  v.  Al- 
len, 3  Baxt.  (Tenn.)  233. 

The  indorser  of  a  bill, is  estopped  by  the  fact  of  his  indorsement 
from  denying  either  the  signature  of  the  drawer  or  her  competence 
(being  a  feme  covert)  to  draw  the  bill.  Ross  v.  Dixie,  7  U.  C.  O.  B. 
414. 

A  second  indorser  cannot,  iu  an  action  against  him  on  the  bill, 
dispute  the  legal  capacity  of  the  payee  to  indorse  on  the  ground  that 
she  was  a  married  woman.  Prescott  Bank  v.  Caverly,  7  Gray  (Mass.) 
217,  66  Am.  Dec.    473  ;  Ogden  <v.  Blydenburgh,    1  Hilt.    (N.    Y.)  182. 

In  Haly  v.  Lane,  2  Atk.  181,  Hakdwicke,  L.  C,  says  :  "In  cases 
of  like  nature  I  have,  at  the  sittings  of  nisi  priiis,  directed  a  jury  to 
find  for  an  indorsee,  notwithstanding  the  indorser  had  the  note 
from  an  infant,  the  original  drawer." 

One  who  indorses  a  promissor)"-  note  purporting  to  be  executed  bj' 
a  copartnership,  thereby  impliedly  contracts  that  the  note  was  made 
by  the  firm  in  whose  name  it  is  executed,  and  he  cannot  dispute  the 
fact  in  an  action  upon  his  indorsement.  Dalrymple  v.  Hillenbrand, 
62  N.  Y.  5,  20  Am.  Rep.  438,  affirming  2  Hun  (N.  Y.)  488. 


Monarch  ct  al. 


Farmers'  &  Traders'  Bank. 

{Court  of  Appeals  of  Kentucky,  Jan.  26,  iSgg.) 

Bills — Notice  of  Protest.* — Where  the  drawer  and  acceptor  of  a  bill 
of  exchange  reside  outside  the  corporate  limits  of  the  city  which  is 
the  place  of  the  dishonor  of  the  bill,  although  within  the  post-office 
delivery  within  which  the  holder  and  notary  reside,  notice  of  pro- 
test may  be  sent  through  the  post-office. 

Appeal  by  defendants  from  Daviess  count}^  circuit 
court.     AfjfiDJied. 

Walker  dc  Shick,  Fairlcigh  c^  Straus  and  Little  & 
Little,  for  appellants. 

Szveoiey,  Ellis  ds  Sucoicy,  for  appellee.    . 

BuRNAM,  J.  This  action  is  upon  a  bill  of  exchange 
accepted   by  R.  W.  Slack,    drawn  by  M.  V.  Monarch, 

*See  notes  at  end  of  case. 


154  PROTEST  [vol  I 

Notes 

and  indorsed  by  R.  Monarch.  Appellants  M.  V.  and 
R.  Monarch  filed  a  joint  answer,  to  which  demurrer 
was  sustained,  and  judg-ment  was  rendered  ag-ainst 
them.  Upon  this  appeal  we  are  asked  to  reverse  that 
judg-ment,  on  the  ground  of  insufficiency  of  notice  of 
protest.  Appellants  each  reside  outside  the  corporate 
limits  of  the  city  of  Owensboro,  which  was  the  place 
of  the  dishonor  of  the  bill,  and  within  the  same  post- 
office  delivery  within  w4iich  the  holder  and  notary  re- 
side. It  is  insisted  that  the  notice  of  dishonor  was 
insufficient  solely  because  it  was  sent  through  the  post- 
office,  and  was  not  delivered  to  them  personally,  or  left 
at  their  respective  residences.  The  defense  relied  on 
in  this  case  has  been  carefulh^  considered  in  the  opinion 
this  day  rendered  in  the  case  of  M.  V.  Monarch  Co.  r. 
Farmers'  &  Drovers'  Bank,  49  S.  W.  317;  and,  for  the 
reasons  indicated  in  that  opinion,  the  judgment  appealed 
from  in  this  action  is  affirmed. 


NOTES. 

Bills  and  Notes— Protest— How  Notice  May  Be  Given.— Where 
the  person  to  be  notified  resides  in  a  different  town  or  village  from 
that  in  which  the  party  giving  notice  of  protest  resides,  such  notice 
may  be  sent  by  mail.  Bussard  v.  Levering,  6  Wheat.  (U.S.)  102; 
Lindenberger  v.  Beall,  6  Wheat.  (U.  S.)  104;  Greene  v.  Farley,  20 
Ala.  322  ;  Shepard  v.  Hall,  1  Conn.  329  ;  Munn  v.  Baldwin,  6  Mass. 
316  ;  Shavlor  v.  Mix,  4  Allen  (Mass.)  351  ;  State  Bank  v.  Ayers,  7 
N.  J.  L.  130;  Foster  v.  Sineath,  2  Rich.  L.  (S.  Car.)  338;  Peabody 
Ins.  Co.  V.  Wilson,  29  W.  Va.  528.  Cow/!)^;^  Nashville  Bank  v.  Ben- 
nett, 1  Yerg.    (Tenn.)   166. 

Where  Person  to  Be  Charged  Resides  at  Place  of  Protest.— Where 
the  party  giving  notice  is  the  last  indorsee,  and  the  party  to  be 
charged  "resides  at  the  place  of  dishonor,  the  notice  must  be  per- 
sonal. Thus  where  a  note  was  payable  at  a  particular  place,  and 
the  party  to  be  charged  resided  at  the  place  of  payment,  it  was  held 
that  notice  given  through  the  post-office  at  that  place  by  a  notary 
was  insufficient  although  the  actual  holder  resided  in  a  different 
place.     Bowling  v.  Harrison,  6  How.  (U.  S.)  248. 

Contra. — But  a  different  rule  has  been  laid  down  in  Alabama. 
Gindrat  v.  Mechanics'  Bank,  7  Ala.  324  ;  Bibb  t'.  McQueen,  42  Ala. 
408;  Philipe  z'.  Harberlee,  45  Ala.  597. 

Where  Party  to  be  Charged  Does  Not  Reside  at  Place  of  Protest.— 
But  where  the  party  to  be  charged  resides  in  a  different  place  from 
that  in  which  the  transaction  which  is  to  be  notified  takes  place, 
personal  service  of  a  notice  of  dishonor  is  not  required  to  be  made 


B  CAS]  PROTEST  155 

Notes 

although  the  party  to-be  charged  and  the  party  who  is  to  serve  the 
notice,  if  he  be  the  last  holder,  reside  in  the  same  place.  Ransom 
V.  Mack,  2  Hill  (N.  Y.)  590,  38  Am.  Dec.  602  ;  Eagle  Bank  v.  Hath- 
away, 5  Met.  (Mass.)  212. 

Thus  notice  of  protest  may  be  given  through  the  mail  by  a  notary 
at  the  place  of  dishonor  to  a  drawer  or  indorser  living  in  a  different 
place,  and  this  though  the  actual  holder  and  the  party  to  be  charged 
reside  in  the  same  place.  Greene  v.  Farle)',  20  Ala.  322  ;  Hartford 
Bank  v.  Stedman,  3  Conn.  489;  Manchester  Bank  v.  Fellows,  28  IS. 
H.  313.     See  also  Wynen  v.  Schappert,  6  Daly  (N.  Y.)  558. 

Where  Party  to  Be  Charged  Resides  at  Great  Distance  from  Post- 
Office. — An  exception  to  the  rule  as  stated  above  has  been  held 
to  be  necessary  also  where  the  partj'  to  be  charged  resides  at  an  un- 
reasonably great  distance  from  any  post-office.  Fish  v.  Jackman, 
19  Me.  467,  36  Am.  Dec.  769.  See  also  Columbia  Bank  v.  Lawrence, 
IPet.    (U.  S.)   578. 

But  in  State  Bank  v.  Ayers,  7  N.  J.  Iv.  130,  Ford,  J.,  said  :  "If 
persons  residing  far  from  a  post  town,  aside  from  the  common 
walks  of  gregarious  commerce,  will  give  their  names  in  guarantee 
of  commercial  paper,  it  is  better  thej'  should  be  held  to  inquire  for 
letters  at  the  nearest  post-office,  about  the  time  such  paper  comes  to 
maturity,  than  that  the  holder  should  be  compelled  to  send  a  special 
messenger  fifty  or  one  hundred  and  fifty  miles  to  serve  personal 
notice  ;  or  that  an  established  sj'stem  of  notices,  sufficiently  com- 
plex already,  should  be  forced  to  give  way  to  the  introduction  of 
novel  exceptions  imposing  burthensome,  expensive,  and  hazardous 
duties  on  all  men  of  business,  merely  out  of  favor  to  eccentric  resi- 
dences." 

When  iVlail  Service  is  Suspended. — Where  the  mail  service  be- 
tween two  points  is  suspended,  service  of  notice  should  be  made  by 
some  other  mode  of  convej-ance.  Citizens'  Bank  v.  Pug-h,  19  La. 
Ann.  43  ;  Lapeyre  v.  Robertson,  20  La.  Ann.  399. 

Proper  Transmission — Question  for  Court. — Whether  in  a  given 
case  notice  sent  through  the  post-office  is  sent  by  the  proper  modes 
is  a  question  of  law  when  the  facts  are  ascertained  and  undisputed. 
Columbia  Bank  v.  Lawrence,  1  Pet.  (U.  S.)   582. 

When  Parties  Reside  in  Different  Villages  of  Same  Municipality. — 
Notice  by  mail  will  be  sufficient  where  the  parties  reside  in  the  same 
municipality,  town,  or  district,  but  in  distinct  parishes,  villages,  or 
settlements,  distant  from  each  other,  between  which  there  is  a  reg- 
ular intercourse  by  mail,  where  it  is  shown  that  the  party  to  be 
charged  is  in  the  habit  of  receiving  letters  at  the  post-office  of  a 
village  or  settlement  in  or  near  which  he  resides.  Shavlor  v.  Mix, 
4  Allen  (Mass.)  351  ;  Ransom  v.  Mack,  2  Hill  (N.  Y.)  5*87,  38  Am. 
Dec.  602;  Paton  v.  Lent,  4  Duer  (N.  Y.)  231;  Van  Vechten  v. 
Pruyn,  13  N.  Y.  M9.  See  also  Chicopee  Bank  v.  Eager,  9  Met. 
(Mass.)  583. 

Notices  between  Distant  Post-Offices  in  Same  City. — In  Paton  v. 
Lent,  4  Duer  (N.  Y.)  231,  it  was  held  to  be  a  sufficient  notice  to  an 
indorser,  though  residing  in  the  city  where  the  note  was  protested, 
to  mail  it  to  him  when  he  resides  some  eight  miles  from  the  place 
where  it  was  protested  and  there  is  a  post-office  at  the  place  where 
he  resides,  no  point  being  made  that  he  does  not  receive  his 
letters  at  such  post-office. 

In  Shaylor  v.  Mix,  4  Allen  (Mass.)  351,  BiGELOw,  C.  J.,  said:  "On 


156  PROTEST  [vol  I 

Notes 

the  question  of  notice,  the  fact  that  the  parties  both  live  within 
the  territorial  limits  of  a  large  town  and  under  the  same  municipal 
government  may  be  quite  immaterial.  The  real  inquiry  is  whether 
there  are  regular  commvinications  by  mail  from  the  place  where  the 
notice  is  deposited  to  that  where  the  drawer  or  indorser  resides, 
and  a  separate  post-office  in  the  latter  place  to  which  he  is  in  the 
habit  of  resorting  to  receive  letters  which  are  forwarded  to  him 
there  by  mail. .  If  so,  then  a  notice  seasonabli'  deposited  in  the 
mail  ma3"  well  be  deemed  a  reasonable  and  sufficient  notice  of  the 
dishonor  of  a  bill  or  note." 

Where  Party  Resides  Outside  City  Limits,  but  Receives  Mail 
Therein. — Where  the  party  to  be  notified  resides  outside  the  town 
or  city  in  which  the  holder  resides  or  the  paper  is  payable,  but  is  in 
the  habit  of  receiving  his  mail  at  the  post-office  there,  although  he 
has  no  place  of  business  therein,  the  general  doctrine  is  that  it  is 
sufficient  to  deposit  a  notice  addressed  to  him  in  such  post-office. 
Columbia  Bank  v.  Lawrence,  1  Pet.  (U.  S.)  578  ;  Carson  v.  State 
Bank,  4  Ala.  l^'s  ;  Walker  v.  Augusta  Bank,  3  Ga.  486  ;  Timms  v. 
Delisle,  5  Blackf.  (Ind.)  447;  Bell  z'.  State  Bank,  7  Blackf.  (Ind.) 
456;  Bondurant  v.  Everett,  1  Mete.  (Ky.)  658,  overj-iiling  ^dLrmers', 
etc..  Bank  v.  Butler,  3  Litt.  (Ky.)  498  ;  Lathrop  v.  Delee",  8  La.  Ann. 
170;  New  Orleans  Canal,  etc.,  Co.  v.  Barrow,  2  La.  Ann.  326,  ap- 
parentlv  overruling  M'Crummen  v.  M"Crummen,  5  Martin  N.  S. 
(La.)  158.  and  State  Bank  v.  Rowel,  6  Martin  N.  S.  (La.)  506;  U.  S. 
Bank  v.  Norwood,  1  Har.  &  J.  (Md.)  423  ;  Barret  v.  Evans,  28  Mo. 
331  ;  Sanderson  v.  Reinstadler,  31  Mo.  483  ;  State  Bank  v.  Vaughan, 
36  Mo.  90;  Jones  v.  Lewis,  8  W.  &  S.  (Pa.)  14;  Foster  v.  Sineath, 
2  Rich.  L.  (S.  Car.)  338.  See  also  Nevius  v.  Lansingburg  Bank,  10 
Mich.  547,  cr't-rr//////^  Newberry  ?'.  Trowbridge,  4  Mich.  391. 

Contra. — Patric  v.  Beazlev,  6  How.  (Miss.)  609,  38  Am.  Dec.  456  ; 
Forbes  v.  Omaha  Nat.  Bank,  10  Neb.  344,  35  Am.  Rep.  480;  Barker 
V.  Hall,  Mart.  &  Y.  (Tenn.)  183  ;  Brown  v.  Abingdon  Bank,  85  Va. 
95.     See  also  Davis  v.  State  Bank,  4  Sneed  (Tenn.)  390. 

Where  Notice  Actually  Received. — In  A^ebraska,  however,  it  has 
been  held  that  where  an  indorser  receives  his  mail  at  the  place 
where  the  note  is  pa3'able,  a  notice  of  nonpayment  actually  received 
by  him  through  the  mail  in  due  time  will  be  sufficient  to  charge  him 
as  indorser.  Phelps  v.  Stocking,  21  Neb.  443  ;  Hendershot  v.  State 
Nat.  Bank,  25  Neb.  127. 

Where  Party  to  Be  Notified  Has  Place  of  Business  Within  City 
Limits. — Where  an  indorser  lives  outside  of  the  limits  of  the  citv  at 
which  the  note  is  payable  and  dishonored,  it  has  been  held  that 
notice  through  the  post-office  to  such  an  indorser  is  ordinarily'  suffi- 
cient ;  but  if  in  such  a  case  the  indorser  has  a  known  place  of  busi- 
ness in  the  city,  notice  of  protest  should  be  left  there,  and  cannot 
be  given  through  the  post-office  unless  it  is  shown  to  have  been  re- 
ceived in  due  time.     Spalding  v.  Krutz,  1  Dill.  (U.S.)  414. 

Where  Party  Receives  Mail  in  One  Town  and  Resides  in  Another 
Post  Town. — In  Shelburne  Falls  Nat.  Bank  v.  Townsley,  107  Mass. 
444,  it  was  held  that  an  indorser  living  in  a  post  town  is  not  prop- 
erly notified  by  a  drop  letter  left  for  him  in  the  post-office  in  an- 
other town,  where  the  holder  resides,  and  addressed  to  the  indorser 
as  if  he  also  resided  there,  even  thoug-h  it  should  appear  that  the 
indorser  is  in  the  habit  of  resorting  to  the  post-office  in  each  of  the 
two  places. 


B  CAS]  PROTEST  157 

Riidd  V.  Deposit  Bank 


RuDD  ei  al. 
Deposit  Bank. 

RUDD 

V. 

Same. 

{Court  of  Appeals  of  Kentucky,  Jan.  26,  i8gg.) 

Judgments  against  Agents. — Where  defendant  in  an  action  on  a 
bill  of  exchange  signed  by  defendant  as  agent  for  an  estate  was 
sued  as  such  agent,  execution  on  the  judgment  recovered  will  go  to 
be  levied  of  assets  in  his  hands  as  agent,  and  not  of  his  individual 
property. 

Action  on  Bill — Pleading. — A  petition,  in  an  action  against  S.  & 
M.,  which  alleges  that  S.,  as  agent  of  a  certain  estate,  accepted  in 
writing,  and  promised  to  pay  the  bill  sued  on,  and  that  before  ma- 
turity thereof  it  was  sold, discounted  and  indorsed  to  plaintiff  by  M. 
in  the  usual  course  of  business,  sufficiently  avers  an  agreement  or 
promise  to  pay  on  the  part  of  defendants. 

Same  — Same. — The  question  whether  the  petition  states  a  cause 
of  action  cannot  be  raised  by  general  demurrer. 

Same — Same. — In  such  action,  where  the  petition  amended  at  de- 
fendant's instance  furnished  sufficient  information  to  enable  them 
to  ascertain  definitely  the  amount  of  usury  involved,  an  answer  to 
such  amended  petition  which  merely  states  that  defendants  cannot 
form  a  belief  whether  such  information  is  true  or  not,  is  demurrable. 

Notice  of  Protest.* — A  iiotice  of  protest  of  a  bill  is  sufficient  if,  on 
the  whole,  it  so  designates  or  distinguishes  the  paper  as  to  leave  no 
reasonable  doubt  in  the  mind  of  the  party  notified  as  to  the  paper 
intended. 

Appeals  by  defendants  from  Daviess  county  circuit 
court.     Affirmed. 

Walker  &  Slack  and  Chapeze  Wathen.,  for  appel- 
lants. 

Siveeiiey,  Ellis  <£:  Szveency  and  Weir  &  Weir,  for 
appellee. 

*See  notes  at  end  of  case. 


158  '  PROTEST  [vol  I 

Rndd  V.  Deposit  Bank 

BuRNAM,  J.  These  two  appeals  involve  the  deter- 
mination of  the  same  points.  They  are  free  from  judg-- 
ments  rendered  in  suits  instituted  by  appellee  to 
recover  of  William  Rudd,  as  drawer,  John 
Murphy,  as  indorser,  and  R.  W.  Slack, 
ag-ent  for  the  Rudd  estate,  as  acceptor,  certain  bills  of 
exchang^e,  which  had  been  protested  for  nonpayment. 
The  same  defenses  were  made  in  both  suits  by  R.  W. 
Slack,  as  agent  for  the  Rudd  estate,  and  John  Murphy. 
Slack,  as  ag-ent  for  the  Rudd  estate,  answers  as  accept- 
or, and  says  that,  before  he  qualified  as  agent  for  that 
estate,  the  drawer,  William  Rudd,  was  acting  in  that 
capacity,  and'" was  the  acceptor  of  the  bills  when  origi- 
nally created  ;  that  when  he  qualified  as  agent  he  sim- 
ply renewed  the  bills  theretofore  carried  by  plaintiff 
with  his  predecessor  as  agent  ;  that  each  of  them  evi- 
denced the  same  debt,  and  that  each  was  for  the  use 
and  benefit  of  the  Rudd  estate;  that  there  was  usur}' 
embraced  in  all  of  them,  and  that  the  amount  therein 
was  known  with  absolute  certaint}'  to  plaintiff,  but 
that  he  had  no  knowledge  or  information  as  to  how 
much,  and  he  asked  that  plaintiff  be  required  to  state 
specifically  when  each  of  the  bills  originated,  the  dates 
when  they  were  renewed,  and  the  amount  of  interest 
paid  at  the  date  of  each  renewal,  and  that  the  usur}^ 
embraced  therein  be  eliminated.  Thereupon  plaintiff 
filed  its  amended  petition,  setting  out  fully  the  history 
of  the  bills  and  the  usury  contained  in  each,  which  was 
sworn  to  by  the  president  of  the  bank.  Slack,  as  agent, 
filed  answer  to  the  amended  petition,  in  which  he  pleads 
lack  of  knowledge  or  information  sufficient  to  form  a 
belief  as  to  whether  the  history  given  by  the  bank  of  the 
bills  and  the  usury  contained  therein  are  correct,  and 
averred  that  he  believed  that  there  was  more  usury  in 
the  bills  than  was  admitted  by  plaintiff,  but  that  he 
could  not  state  how  much.  Plaintiff  demurred  to  the 
answer  as  amended,  which  was  sustained,  and  judg- 
ment was  rendered  against  Slack,  as  agent  of  the  Rudd 
estate.  The  defendant  John  Murphy  filed  a  general 
demurrer  to  the  petition,  and  he  also   filed   an  answer, 


B  CAS]  PROTEST  159 

Rudd  V.  Deposit  Bank 

in  which  he  denies   that  he  promised  to  pay  either  of 
the   bills  sued  on,   but  alleg-es  that  he  was  a  mere  ac- 
commodation indorser  thereon;  that  he  did  notknow^or 
have    information    sufficient    to    form    a     belief,   as    to 
whether  plaintiff  presented  the  bills  at  maturity  at  the 
place    where  they    were   made  payable,    or  demanded 
payment,    or    that   payment  was  refused,   or  that  the 
bills   were,   in  fact,    protested  for  nonpayment,  except 
as  furnished  by  the  protest  filed  with   the  petition,  and 
files  as  an  exhibit   with  his  answer  the  various   notices 
received    by  him  from  the  notary  public,  of  which  the 
following-    is    a    specimen  :   "Daviess  County,    City  of 
Owensboro,  February  6,  1896,     Please  take  notice  that 
a  bill  of  exchang-e  for  SI, 000.00,  drawn  by  W.  M.  Rudd 
on  R.  W.  Slack,  agent  of  the  Rudd  estate,  in  favor  of 
John  Murph3%  or  order,  dated   December  5,  1895,  pay- 
able 60  days  after  date,  at  Owensboro,  Ky.,   indorsed 
by  John  Murphy,  was  this  day  protested  by  the  under- 
signed   notary    public  for    nonpayment.     The    holder 
thereof  looks  to  you  for  payment.     To  John   Murphy. 
Gus  T.  Brannon,  Notary  Public."     The  notice  of  pro- 
test on  each  of  the  bills  is  alike.     The  plaintiff  filed 
demurrers  to  these  answers  as  amended,   which   were 
sustained  ;    and,    the     defendants    declining-    to    plead 
further,  it  was  adjudg-ed  by  the  court  "that  the  Deposit 
Bank  of  Owensboro,    Ky.,  recover  of  the  defendants 
Wni.  Rudd,  John  Murphy,  and  R.  W.  Slack,  agent  of 
the  Rudd   estate,  the  amount  of  each   acceptance,  with 
interest ;  *  *   ""  and  we  are  asked  upon  this  appeal  to 
reverse  that  judg-ment  for  a  number  of  alleg-ed  errors  : 
First,    because  the  judgment  as  rendered  is  ag-ainst 
R.  W.  Slack,  to  the  payment  of  which   his  individual 
property  may  be  subjected,  and  not  against 
the  Rudd  estate,  the  real  debtor.    In  response     ifa?n"t"lgents. 
to  this    it  may   be  said   that  the  bill  of  ex- 
change sued  on  was  accepted  b}^  R.  W.  Slack  as  agent 
of  the  Rudd  estate  ;  that  the  suit  was  against  him  in  the 
same  capacity  ;  and  that  the  whole  proceeding  shows 
that  it  is   not   a  claim   for  which  R.  W.   Slack    or    his 
estate   is   personalh^  liable,    but  one    ag-ainst  the  Rudd 


160  PROTEST  [vol,  1 

Rudd  v.  Deposit  Bank 

estate;  and,  if  execution  should  issue  on  the  judgfment. 
it  would  ^o  to  be  levied  of  assets  in  his  hands  as 
agfent. 

It  is  the  next  contention  of  appellants  that  the  peti- 
tion in  neither  case  sufficiently  avers  an  acrreement  or 
promise  to  pay.  The  petition  alleg-es  that  R.  W.  Slack, 
as  ag-ent  of  the  Rudd  estate,  accepted  in 
pieadiuT/'""  writing-,  and  promised  and  ag-reed  to  pay, 
the  bill  in  question,  and  that  before  the 
maturity  thereof  it  was  sold,  discounted,  and  indorsed 
to  the  plaintiff  by  John  Murphy,  in  the  usual  course  of 
business.  It  avers  an  express  promise  to  pay  by  Slack, 
and  the  alleg^ation  "that  it  was  sold,  discounted,  and 
indorsed  to  the  plaintiff  by  Murphy"  amounts  to  an 
averment  that  he  sig-ned  and  delivered  the  bill. 

The  third  g-round  relied  on  is  that  the  petition  does 
not  state  facts  sufficient  to  support  a  cause  of  action, 
"  and  that  it  fails  to  refer  to  the  act  of  plain- 
tiff's incorporation,  as  required  by  subsec- 
tion 2  of  section  119  of  the  Civil  Code  of  Practice. 
This  defense  is  not  made  or  relied  on  in  the  answer  of 
either  of  the  defendants,  and  the  question  cannot  be 
raised  by  g-eneral  demurrer. 

It  is  also  insisted  by  appellants  that  the  court  erred 
in  sustaining-  a  demurrer  to  their  answers  to  plaintiff's 
amended  petition.  "We  cannot  concur  in  this  conten- 
tion. By  their  orig-inal  answer,  the  ap- 
pellants alleg-e  that  the  plaintiff  had  exact 
information  as  to  the  amount  of  usury  contained  in  the 
oblig-ation  sued  on,  and  asked  that  it  be  required  to 
state  the  time  when  the  bills  origfinated,  the  date  of 
each  renewal,  and  the  amount  of  interest  paid  thereon. 
The  amended  petition  furnished  specifically  the  in- 
formation called  for,  and  the  defendants  cannot  be  per- 
mitted to  say  that  they  have  not  sufficient  knowledg-e 
or  information  to  form  a  belief  as  to  whether  the  in- 
formation g-iven  is  true  or  not.  If  the  defendants  de- 
sired to  challeng-e  the  correctness  of  the  bank's  state- 
ment as  to  the  history  of  the  oblig-ations  sued  on,  or 
as   to    the  amount  of    usury  contained    therein,    they 


B  CAS]  PROTEST  161 

Rudd  V.  Deposit  Bank 

should  do  so  specifically,  as  the  amended  petition  fur- 
nished sufficient  information  to  enable  them  to  ascertain 
definitely  the  amount  of  such  usury.  The  demurrer 
was  properly  sustained. 

The  last  g-round  of  complaint  relied  on  by  appellant 
Murphy  is  that  the  notice  of  protest  was  not  sufficiently 
definite  to  identify  the  note  protested.  It  is  not  nec- 
essary for  a  notice  to  gfive  all  the  essential  ^^ji^^rproust. 
parts  of  the  paper  dishonored,  or  to  describe 
it  in  every  respect  accurately.  The  rule,  stated  g'en- 
erally,  may  be  said  to  be  that  "a  notice  is  sufficient  if, 
on  the  whole,  it  so  desio-nates  or  disting-uishes  the 
paper  as  to  leave  no  reasonable  doubt  in  the  mind  of 
the  party  notified  what  paper  was  intended."  See  4 
Am.  &  Engr.  Enc.  Law,  417,  and  authorities  there 
cited.  The  requirements  of  the  law  are  considered  as 
satisfied  by  any  description  which,  under  all  the  cir- 
cumstances of  the  case,  so  designates  the  bill  or  note 
as  to  leave  no  doubt  in  the  mind  of  the  party,  as  a  rea- 
sonable man,  what  bill  or  note  was  intended.  See 
Daniel,  Neg-.  Inst.  §  974.  Chit.  Bills,  290,  says:  "There 
are  two  requisites  to  a  g-ood  notice,  c7>.  a  description 
of  the  bill,  and  an  intimation  that  it  has  been  dishon- 
ored." In  Mills  r.  Bank,  11  Wheat.  437,  the  court 
says:  "The  objection  to  the  notice  is  that  it  does  not 
state  that  payment  was  demanded  at  the  bank  when 
the  note  became  due.  It  is  not  necessary  that  the 
notice  should  contain  such  a  formal  alleg-ation.  It  is 
sufficient  that  it  states  the  nonpayment  of  the  note,  and 
that  the  holder  looks  to  the  indorser  for  indemnit}'." 
In  the  case  of  Young-  :■.  Bennett,  7  Bush,  478,  this 
court  said:  "It  is  not  required  that  the  notice  of  the 
dishonor  of  a  bill  should  be  set  out  in  any  particular 
form,  nor  is  the  party  g;iving  it  confined  to  specific 
lang-uag-e."  It  seems  to  us  that  the  protest  and  notice 
of  dishonor  in  each  case  is  a  substantial  compliance 
with  the  requirements  of  the  law-.  For  the  reasons 
indicated,  the  judg-ments  in  both  cases  are  affirmed. 

B  CAS— 11 


162  PROTEST  [vol  I 

Notes 

Bills  and  Notes — Notice  of  Protest — Description  of  Paper. ^ — A  no- 
tice of  protest  will  uot  be  rendered  insufficient  by  an  omission  or 
misdescription  in  the  paper  in  question,  if  on  the  whole  it  so  desig- 
nates or  so  distinguishes  the  paper  as  to  leave  no  reasonable  doubt 
in  the  mind  of  the  party  notified  which  paper  was  intended.  Cooper 
V.  Gibbs,  4  McLean  (U.  S.)  396;  Crawford  v.  Branch  of  State  Bank, 
7  Ala.  205  ;  Kilgore  v.  Bulklej-.  14  Conn.  363  ;  Brown  v.  Jones,  125 
Ind.  375,  21  Am.  St.  Rep.  227;  Wood  v.  Watson,  53  Me.  300  ;  Gilbert 
V.  Dennis.  3  Met.  (Mass.)  495,  38  Am.  Dec.  329;  Townsend  v.  Chas. 
H.  Heer  Dry  Goods  Co.,  85  Mo.  508  ;  Rowland  v.  Adrain,  30  N.  J.  L. 
41 ;  Dodson  z'.  Taylor,  56  N.  J.  L.  11. 

In  Mills  V.  U.'  S.  Bank,  11  Wheat.  (U.  S.)  431,  Mr.  Justice 
Story  said:  "It  cannot  be  for  a  moment  maintained  that  every  va- 
riance, however  immaterial,  is  fatal  to  the  notice.  It  must  be  such 
a  variance  as  conveys  no  sufficient  knowledge  to  the  party  of  the 
particular  note  which  has  been  dishonored.  If  it  does  not  mislead 
him,  if  it  conveys  to  him  the  real  fact  without  any  doubt,  the  vari- 
ance cannot  be  material,  either  to  guard  his  rights  or  avoid  his 
responsibility." 

In  Thompson  v.  Williams,  14  Cal.  160,  the  court  said  :  "The  object 
of  the  law  in  requiring  a  correct  description  of  the  note  to  be  given 
in  the  notice  to  the  indorseris  that  he  may  be  put  upon  notice  of  the 
extent  of  Wis  liability,  and  placed  in  possession  of  the  material  facts 
necessary  to  enable  him  to  secure  the  liability  of  others  over  to  him, 
and  his  own  reimbursement  upon  payment  of  the  note.  The  rule 
"was  not  intended  to  subserve  a  technical  purpose,  but  to  promote 
substantial  justice,  and  when  it  sufficiently  appears  that  the  indor- 
ser  at  the  time  of  receiving  the  notice  knew  what  particular  piece  of 
paper  was  referred  to,  and  could  not  have  been  prejudiced  hy  the 
failure  to  describe  it,  he  cannot  be  permitted  to  object  that  his  in- 
formation was  not  communicated  in  a  particular  manner." 

Illustrations. — In  the  following  cases  the  above  rule  was  held  to 
be  applicable,  and  the  misdescription  or  omission  declared  im- 
material : 

Note  Described  as  a  j^///.— Messenger  v.  Southey,  1  M.  &  G.  76,  39 
E.  C.  L.  360. 

Bill  Described  as  a  A'ci/6'.— Stockman  v.  Parr,  11  M.  &  W.  809. 

Misdescription  as  to  Datc—MWls,  v.  U.  S.  Bank,  11  Wheat.  (U.  S.) 
431  ;  Ross  v.  Planters'  Bank,  5  Humph.  (Tenn.)  335. 

Omission  of  Z^'rt^i'.— Shelton  v.  Braithwaite,  7  M.  &  W.  436;  Salt- 
marsh  V.  Tuthill,  13  Ala.  390;  Housatonic  Bank  z'.  Laflin,  5  Cush. 
<Mass.)  546  ;  Youngs  v.  Lee,  12  N.  Y.  551. 

Abbreviated  Statement  of  Date. — Where  a  draft  was  referred  to  in 
a  notice  as  dated  2^11 — 84,  it  was  held  that  the  omission  of  the  name 
of  the  month  was  immaterial.  Brown  v.  Jones,  125  Ind.  375,  21  Am. 
•St.  Rep.  227.  The  court  in  this  case  said  :  "The  appellant  knew  as 
-well  from  the  figures  employed  the  dates  intended  as  though  the 
name  of  the  month  had  been  written,  and  that  was  all  that  was  nec- 
•essary." 

Mistake  or  Omission  as  to  Time  of  Payment. — Shelton  v.  Braith- 
waite, 7  M.  &  W.  436  ;  Saltmarsh  v.  Tuthill,  13  Ala.  390  ;  Denegre  v. 
Hiriart,  6  La.  Ann.  100;  Youngs  v.  Lee,  12  N.  Y.  551  ;  Gates  z'. 
Beecher,  60  N.  Y.  518,  19  Am.  Rep.  207  ;  Tobey  v.  Lennig,  14  Pa. 
St.  483. 


B  CAS]  PROTEST  163 

Notes 

Where  notice  was  served  on  the  indorser  on  the  25th  of  May  set- 
ting forth  that  a  note  indorsed  by  him  was  due  on  that  day,  which 
was  the  day  on  which  the  note  in  suit  actuallj-  fell  due,  but  the 
notice  was  dated  May  26,  the  notice  was  held  to  be  sufficient  though 
there  was  a  misdescription  of  the  note  as  to  the  time  of  payment. 
Tobey  v.  Lennig-,  14    Pa.    St.  483. 

Misdescription  as  to  Place  of  Payment. — Housatonic  Bank  v.  Laflin, 
5  Cush.  (Mass.)  546. 

In  an  action  by  the  indorsee  against  the  indorser  of  a  bill  of  ex- 
chang-e  payable  at  the  I^ondon  Joint  Stock  Bank  in  London,  notice 
of  dishonor  was  proved  describing  the  bill  as  payable  at  the 
London  and  Westminster  Bank.  This  was  held  to  be  no  ground  for 
nonsuit,  the  notice  being  accurate  in  all  other  respects  and  there 
being  no  proof  that  the  defendant  has  been  misled.  Bromage  v. 
Vaughan,  9  Q.  B.  608,  58  E.  C.  L.  608. 

Mistake  or  Omission  as  to  Amount. — Shelton  v.  Braithwaite,  7  M. 
&.  W.  436;  Alexandria  Bank  z'.  Swann,  9  Pet.  (U.  S.)  33;  King  z'. 
Hurley,  85  Me.  525;  Snow  v.  Perkins,  2  Mich.  238;  Rowan  v.  Oden- 
heimer,  5  Smed.  &  M.  (Miss.)  44;  Cayuga  County  Bank  v.  Warden, 
1  N.  Y.  413  ;   Compare  Remer  v.  Downer,  23  Wend.  (N.  Y.)  620. 

Thus  a  notice  of  protest  of  a  note,  which  described  the  note  pro- 
tested as  being  of  one  dollar  less  in  amount  than  the  one  offered  in 
evidence,  but  in  other  particulars  identified  it,  is  sufficient  to  uphold 
the  finding  of  the  jury  against  the  indorser  predicated  on  such  notice. 
Rowan  v.  Odenheimer,  5  Smed.  &  M.  (Miss.)  44. 

In  the  same  way  where  a  notice  misdescribed  a  note  in  respect  to 
the  sum  for  which  it  was  made,  as  where  the  note  was  for  six  hun- 
dred dollars  and  the  notice  described  a  note  for  three  hundred  dol- 
lars, it  was  held  that  the  notice  was  sufficient  where  it  was  shown, 
in  aid  of  the  defect,  that  there  was  no  other  note  in  existence 
to  which  the  description  contained  in  the  notice  could  be  applied, 
Cayuga  County  Bank  v.  Warden,  1  N.  Y.  413. 

Omission  of  Name  of  Indorsct . — King  z/.  Hurley,  85  Me.  525;  Sass- 
cer  V.  Farmers'  Bank,  4  Md.  409. 

Indorser  Described  as  Maimer. — Haines  v.  Dubois,  30  N.  J.  L.  261. 

Drawer  Described  as  Acceptor. — Mellersh  v.  Rippen,  7  Exch.  579  ; 
Compare  Beauchamp  v.  Cash,  D.  &  R.  N.  P.  3,  16  E.  C.  L.  410  ;  Gill 
V.  Palmer,  29  Conn.  54. 

Omission  of  Name  of  Drawee. — Mainer  v.  Spurlock,  9  Rob.  (La.) 
161. 

Misdescription  of  Payee. — Where  the  payee  of  a  bill  was  described 
as  George  N.  .Reid  instead  of  George  W.  Ried  it  was  held  that  the 
mistake  was  immaterial,  as  it  was  not  calculated  to  deceive.  Ried 
V.  Ried,  11  Tex.  585. 

Where  There  are  Two  Instruments  to  Which  Description  may  Ap- 
ply.—In  Hodges  V.  Schuler,22  N.  Y.  114, Wright,!., said:  '"Secondly, 
as  to  the  objection  founded  on  an  omission  in  the  notice  to  designate 
the  number  of  the  note  sued  on  :  it  seems  that  the  note  was  desig- 
nated in  its  margin  as  No.  253,  and  the  notice  omitted  to  describe  it  by 
the  number;  but  this  did  n«t  render  the  notice  per  se  fatally  defect- 
ive. The  number  was  not  a  part  of  the  note,  and  there  was  a  com- 
plete description  of  it  without  the  number.  *  *  *  All  that  a  holder 
of  a  note  is  bound  to  do  is  to  give  the  indorser  a  complete  descrip- 
tion of  it,  and  if  from  such  description  it  cannot  be  identified,  it  is 
the  fault  or  misfortune  of  the  indorser  in   having  indorsed  several 


164  PROTEST  [vol  I 

Notes 

notes  alike  in  every  essential  feature."  In  this  case  there  was 
an  inaccurate  description  as  to  the  name  of  the  maker  which  was 
held  not  to  be  in  itself  misleading-. 

Description  not  Reasonably  Applicable  to  Other  Paper. — Davenport 
V.  Gilbert,  4  Bosw.  (N.  Y  .)  532  ;  Cooperstown  Bank  v.  Woods,  28  N. 
Y.  545. 

A  notice  of  protest  dated  on  the  day  a  note  matured,  describing-  it 
\iy  the  name  of  the  maker  and  its  amount,  and  as  indorsed  by  the 
defendant, and  stating- that  such  note  was  protested  for  nonpayment, 
was  held  to  be  sufficient  in  form  without  stating-  further  descriptive 
particulars,  althoug-h  the  defendant  was,  at  the  time  of  receiving- 
svich  notice, the  indorser  of  another  note  in  all  respects  like  it,  which 
was  outstanding  and  unpaid,  except  that  it  was  payable  three  in- 
stead of  six  months  after  its  date,  it  being-  shown  that  a  suit  was 
pending-  on  the  note  first  due  when  the  second  note  was  protested, 
and  that  the  defendant  had  answered  in  such  suit  before  the  note  in 
question  matured.     Davenport  v.  Gilbert,  4  Bosw.  (N.  Y.)  532. 

Also  where  several  notes  were  indorsed  by  a  party,  the  notice  was 
held  to  be  sufficiently  descriptive  of  one  of  the  notes  where  it  used 
the  present  tense,  saj'ing-  the  note  "is  protested"  (apparently  refer- 
ring- to  the  day  of  the  date  of  the  notice  as  the  day  when  it  was  pro- 
tested), and  described  the  amount  of  the  note  and  the  name  of  the 
maker,  and  was  addressed  to  the  indorser,  and  where,  moreover,  none 
of  the  other  notes  were  held  b3'  the  part^'  sending-  the  notice,  and  none 
of  them  were  in  fact  protested,  and  no  other  note  of  similar  kind 
fell  due  at  the  date  of  notice.  Cooperstown  Bank  v.  Woods,  28 
N.  Y.  545. 

A  person  indorsed  four  notes  which  were  alike  in  ever^-  particular 
excepting  in  regard  to  the  time  of  payment,  and  all  of  which  were  held 
by  a  single  party.  Notice  was  given  which  was  sufficiently  descrip- 
tive of  the  first  note  falling  due.  Afterwards  a  second  notice  was 
given,  which  was  applicable  to  either  the  first  or  second  note  fall- 
ing due,  it  being  an  exact  copy  of  the  first  notice  with  the  ex- 
ception of  a  specification  as  to  interest  due,  and  the  date,  which 
was  the  same  as  that  on  which  the  second  note  became  due.  It  was 
held  that  the  second  notice  was  insufficient  in  that  it  did  not  state 
the  time  of  payment,  the  circumstance  which  distinguished  the 
several  notes.     Cook  v.  Litchfield,  9  N.  Y.  279. 

However,  in  a  new  trial  in  the  lower  court,  it  was  held  that  the 
notice  was  sufficient,  it  being  shown  by  extrinsic  evidence  that,  as 
a  matter  of  fact,  the  indorser  had  not  been  misled  bv  the  notice. 
Cook  V.  Litchfield,  9  N.  Y.  291. 

Misdescription  of  Maker. — Where  there  is  a  misdescription  in  the 
name  of  the  maker  of  a  note,  as  where  he  is  described  as  "Jotham 
Cushing"  instead  of  "Jotham  Cushman,"  the  error  has  been  held  to 
be  trifling  and  immaterial  where  it  is  shown  that  there  was  OYiVy 
one  note  to  which  the  description  could  apply.  Smith  v.  Whiting, 
12  Mass.  6,  7  Am.  Dec.  25. 

Also  where  a  note  was  described  to  have  been  made  by  "S.  Henshaw, 
treasurer,"  when  in  fact  it  was  made  by  a  railroad  company,  as 
whose  agent  S.  Henshaw,  in  his  capacity  as  treasurer,  signed  the 
note,  along  with  the  president,  the  notice  was  held  not  to  be  fatally 
defective  where  it  correctly  described  the  note  in  ever^'  other  par- 
ticular, and  where,  as  a  matter  of  fact,  it  did  not  mislead  the  party 
notified  as  to  the  paper  indorsed.     Hodges  v.  Shuler,  22  N.  Y.  114. 


B  CAS]  PROTEST  165 

Notes 

Also  where  notice  given  to  the  defendant  was  of  the  nonpay- 
ment of  a  note  signed  by  John  B.  Roddy,  etc.,  describing  the  note 
correctly  as  to  other  circumstances  except  the  signature  of  John  in- 
stead of  James,  the  covirt  said  that  if  the  jury  should  be  of  opin- 
ion from  the  evidence  that  the  defendant  had  good  reason  to  be- 
lieve it  to  be  the  note  in  the  declaration  mentioned,  the  jury  ought 
to  presume  that  the  defendant  had  reasonable  notice,  etc.  Under- 
wood 7^    Huddlestone,    2   Cranch  (CO,  93. 

Illegibility  of  Maker's  Name. — Where  the  maker's  name  in  a  note 
is  illegible,  ^and  the  holder  fails  to  make  reasonable  effort  to  ascer- 
tain the  name,  and  misdescribes  it  in  the  notice,  whereby  an  indor- 
ser  is  misled,  the  defect  will  render  the  notice  insufficient.  McGeorge 
V.  Chapman,  45  N.  J.  L.  395,  Beasley,  C.  J.,  in  this  case  said:  "If 
the  signature  had  been  so  written  as  to  lead  the  notary-,  in  the  ex- 
ercise of  due  caution  and  skill,  to  thebelief  that  it  stood  for  a  certain 
name,  and  he  had  so  described  it,  stich  error  would  not  have  vitiated 
his  notice.  A  mistake  of  that  character  is  not  attributable  to  the 
negligence  of  the  holder  of  the  paper  or  that  of  his  agent  giving  no- 
tice of  its  dishonor,  but  the  indorser  who  passes  the  paper  into  cir- 
culation must  bear  the  consequences  of  such  misleading  defect.  But 
when  the  name  of  the  maker  is  not  so  fashioned  as  to  suggest  to  the 
notary  a  false  name,  but  he  finds  it  illegible,  then  it  plainly  becomes 
his  duty  to  use  reasonable  endeavors  to  ascertain  who  is  the  person 
thus  indistinctly  signified.  He  is,  when  thus  placed,  put  upon  in- 
quiry', and  must  use  proper  diligence." 

Omission  of  Name  of  Maker — New  York  Doctrine. — In  Home  Ins. 
Co.  V.  Green,  19  N.  Y.  518,  75  Am.  Dec.  361,  it  was  held  that  a  notice 
of  nonpayment  of  a  promissory  note  was  not  sufficiently  certain  to 
charge  the  indorser  where  it  did  not  state  the  maker's  name.  Dexio, 
J.,  in  this  case  said  :  "The  most  descriptive  feature  of  a  note  is  the 
name  of  the  maker.  The  date,  amount,  and  time  of  the  payment, 
and  the  statement  that  the  party  served  with  the  notice  was  an  in- 
dorser, might  or  might  not  recall  it  to  his  recollection.  One  in- 
dorsing frequently  for  the  accommodation  of  different  persons,  and 
keeping  no  bill-book,  would  not,  by  means  of  such  a  notice,  ordina- 
rily be  able  to  identify  the  paper  on  which  he  was  sought  to  be 
charged.  Nor  would  one  who  indorsed  and  negotiated  his  own  busi- 
ness paper,  if  his  transactions  of  that  kind  were  extensive,  be  much 
more  likely  to  know  what  particular  paper  had  been  dishonored." 

Omission  of  Maker's  Name — New/ Jersey. — InHowland  v.  Adrain, 
30  N.  J.  L.  41,  the  court  said:  "This  case  is  distinguishable  from 
that  of  the  Home  Ins.  Co.  v.  Green,  19  N.  Y.  518,  75  Am.  Dec.  361,  on 
the  ground  that  the  proof  showed  that  defendant  knew  what  note 
was  intended,  with  reasonable  certainty.  Indeed,  that  case  seems 
hardly  reconcilable  with  the  current  of  authorities,  or  even  with  the 
cases  cited  by  the  court  in  its  support.  Perhaps  it  may  be  supported 
upon  the  ground  that  a  mistake  in  the  name,  or  the  omission  of  it 
altogether,  should  be  held  fatal,  inasmuch  as  the  object  of  the  notice 
is  to  enable  the  indorser  to  look  after  the  maker  immediately  and 
secure  himself." 


166  CHECKS  [vol  I 

Neal  V.  Coburn 


Neal  et  al. 

V. 

Coburn. 

{Supreme  Judicial  Court  of  3Iaine,  Nov.  2^,  i8qS.) 

Banks — Signature  of  Depositor — Presumption  of  Knowledge.* — A 

bank  is  presumed  to  know  the  sigfnatiires  of  its  depositors. 

Forged  Checics — Payment  by  Mistake.* — If  a  bank  pay  to  an 
innocent  holder  for  value  the  amount  of  a  check  purporting-  to  be 
drawn  upon  it  by  one  of  its  depositors,  but  the  signature  to  which 
was  in  fact  forged,  the  bank  cannot  recover  back  the  amount  from 
such   holde^. 

Same — Liability  of  Prior  Holder. — If  such  a  holder,  on  demand, 
repay  the  amount  to  the  bank,  that  does  not  entitle  him  to  recover 
the  amount  from  a  prior  innocent  holder  for  value,  who  had  indorsed 
the  check. 

(Official.) 

Agreed  statement  from  Franklin  county  supreme 
judicial  court.     Nonsiiil. 

The  arg-ued  statement  of  facts  reads  as  follows  : 
"For  the  purposes  of  this  trial  it  is  agfreed  that  the 
check  declared  on  in  plaintiffs'  writ, purporting-  to  have 
been  drawn  by  H.  C.  Haven,  in  favor  of  J.  W.  Crew, 
on  the  Bay  State  Trust  Company,  dated  June  19,  1895, 
for  two  hundred  and  fifty  dollars  (S250),  is  a  forg-ery; 
that  the  defendant  received  said  check  from  said  Crew 
on  the  5th  or  6th  of  July,  1895;  that  said  Crew  was 
a  strangfer  in  the  vicinity,  boarding-  at  the  hotel  of  the 
defendant,  and  gfave  this  check  in  payment  of  his  board 
bill,  which  amounted  to  ninety-nine  dollars  and  seventy- 
five  cents  ($99.75),  receiving-  from  the  defendant  the 
balance,  amounting-  to  one  hundred  fifty  dollars  and 
twenty-five  cents  in  money;  that  said  Crew  is  not 
known  or  believed  by  the  parties  to  have  ever  owned 
any    property    in    this    state,     which    was   attachable; 

*See  notes  at  end  of  case. 


B  CAS]  CHECKS  167 

Neal  V.  Coburn 

that  defendant  has  never  seen  or  heard  from  said 
Crew  since  taking-  the  said  check  from  him,  as 
aforesaid,  and  does  not  know  or  believe  that  his  real 
name  is  Crew,  but  believes  he  was  an  impostor;  that 
said  Crew  left  immediately  upon  paying-  his  board 
bill  as  aforesaid;  that  defendant  indorsed  said  cheeky 
and  delivered  the  same  to  the  plaintiff  on  July  20» 
1895,  paying-  an  account  which  plaintiffs  had  ag-ainst 
him  of  about  fifty  dollars  ($50),  receiving-  the  balance 
in  money;  that  plaintiffs  indorsed  and  delivered  said 
check  to  Furbish,  Butler  &  Oakes,  on  July  22, 
1895;  that  Furbish,  Butler  &  Oakes  indorsed  and  de- 
posited said  check  to  their  credit  for  collection,  in  the 
Phillips  National  Bank,  on  July  23,  1895;  that  the 
Phillips  National  Bank  indorsed  the  same,  and  for- 
warded it  for  collection  to  their  correspondent  in  Boston, 
the  National  Bank  of  the  Commonwealth,  where  it  was 
received  on  the  26th  day  of  July,  1895;  that,  on  the 
same  day,  it  was  presented  throug-h  the  clearing-  house 
and  Merchants'  National  Bank,  by  the  National 
Bank  of  the  Commonwealth,  to  the  said  Bay  State 
Trust  Company,  for  collection  (the  Bay  State  Trust 
Company  not  being-  a  member  of  the  Clearing-  House 
Association,  and  all  checks  drawn  upon  them  being-  re- 
ceived by  the  Merchants'National  Bank  as  an  accommo- 
dation to  them);  that  said  check  was  received  with  others 
by  the  Ba\^  State  Trust  Company,  in  due  course  of 
business,  as  aforesaid,  marked  'Paid',  and  charged  to 
the  account  of  said  H.  C.  Haven,  he  being-  a  regular 
customer  of  said  bank,  and  having  an  account  there; 
that,  when  said  trust  company  received  said  check,  it 
did  not  discover  that  it  was  a  forgery,  the  signature 
thereto  being-  a  close  imitation  of  the  signature  of 
said  H.  C.  Haven;  that  as  soon  as  said  Bay  State  Trust 
Company  discovered  that  said  check  was  a  forg-ery, 
namely,  some  time  from  July  27  to  July  29,  1895,  in- 
clusive, it  at  once  returned  said  check  to  the  National 
Bank  of  the  Commonwealth,  demanding-  a  return  of 
the  amount;  that  the  National  Bank  of  the  Common- 
wealth refused  to  return  the  amount  unless    thev  first 


168  CHECKS  [voiv  I 

Neal  V.  Coburn 

received  it  from  the  Phillips  National  Bank,  from  which 
bank  they  received  said  check;  that  said  National  Bank 
of  the  Commonwealth  received  said  check  from  the  Bay 
State  Trust  Company,  and  immediately  forwarded  it 
to  the  Phillips  National  Bank,  demanding  a  return  of 
the  amount,  where  it  was  received  bv  said  Phillips 
National  Bank,  on  July  30,  1895:  that  the  Phil- 
lips National  Bank  returned  said  check  to  Furbish, 
Butler  &  Oakes  on  July  30,  1895,  deraandino-  the 
amount  thereof  of  them;  that,  on  the  same  day.  Fur- 
bish, Butler  &  Oakes  returned  said  check  to  the 
plaintiffs,  demanding-  the  amount  of  them,  which 
was  then  and  there  paid  by  the  plaintiffs  to  said  Furbish, 
Butler  *&  Oakes;  that  said  Furbish,  Butler  &  Oakes  at 
once  remitted  the  amount  to  the  Phillips  National 
Bank,  and  they  to  the  National  Bank  of  the  Common- 
wealth, where  it  was  received  and  paid  to  the  Bay  State 
Trust  Company,  where  it  was  received  and  credited  to 
the  account  of  said  H.  C.  Haven,  on  August  5,  1895; 
that  the  plaintiffs  offered  to  return  said  checks  to  the  de- 
fendant, and  demanded  a  return  of  the  amount  of  him 
on  July  31,  1895,  and  the  defendant  agreed  to  pay  the 
same,  and  did  pav  thereon  the  sUm  of  one  hundred  dol- 
lars, but  subsequently  refused  to  pay  the  balance;  that 
the  defendant  required  no  identification  of  said  Crew, 
nor  his  rightor  title  to  said  check, before  taking  the  same; 
that  said  Haven  has  now  drawn  upon  said  Bay  State 
Trust  Company  about  650  checks,  and  had  at  the  time  of 
the  forgery  drawn  about  350;  that  said  Crew,  on  June 
19,  1895,  called  at  the  cottage  of  said  Haven,  and  pro- 
cured three  genuine  checks,  as  an  accommodation,  he 
said,  to  send  away,  one  for  $v50,  and  two  for  S25  each, 
paying  the  money  for  the  same,  and  at  the  same  time 
stole  three  blank  checks  from  the  back  of  said  Haven's 
check  book,  namely,  Nos.  998,  999,  1,000;  that  the  check 
in  suit  is  the  blank  numbered  1,000;  that  said  Crew,  at 
the  time  of  transferring  said  check  to  the  defendant, 
said  that  Haven  wanted  him  (said  Crew)  to  hold  said 
check  until  about  the  1st  of  August,  before  collecting 
the  same,  and   that  he  (Crew)  would  like  to  have  him 


B  CAS]  CHECKS  169 

Neal  V.  Coburn 

(defendant)  hold  the  same  until  that  time;  that  said  de- 
fendant did  not  impart  or  make  known  said  request  to 
said  plaintiffs.  Copy  of  check  to  be  a  part  of  the  case, 
and  origfinal  to  be  transmitted  to  law  court.  Upon  the 
foreg"oino-  facts,  it  is  ao-reed  that  the  law  court  may 
render  such  judg'ment  as  the  law  and  facts  require.  If 
the  action  is  maintainable,  defendant  to  be  defaulted  for 
S150,  and  interest  from  date  of  writ;  if  not  maintainable, 
plaintiffs  to  become  nonsuit." 

Arg-ued  before  Peters,  C.  J.,  and  Emery,  Has- 
kell, Whitehouse,  Strout,  and  Savage,  JJ. 

F.  E.  Timberlake,  J.  C.  Hohiiaii,  and  F.  W.  Butler, 
for  plaintiffs. 

H.  L.    Whitcomb  andy.  P.   Szcasey,  for  defendant. 

Emery,  J.  Haven  was  a  depositor  in  the  Bay  State 
Trust  Company,  a  bank  in  Boston.  A  written  instru- 
ment purporting-  to  be  his  check  upon  that  bank,  pa}"- 
able  to  Crew  or  order,  was  by  Crew  indorsed  for  value 
to  Coburn,  the  defendant.  Coburn  indorsed  it  for  value 
to  Neal  &  Quimby.  That  firm  indorsed  it  for  value  to 
Furbish,  Butler  &  Oakes.  The  latter  firm  indorsed 
it  for  collection  to  the  Phillips  National  Bank.  The 
Phillips  Bank  indorsed  it  for  collection  to  the  Common- 
wealth Bank  of  Boston,  which  bank  presented  it  for 
payment  through  the  clearing-  house  to  the  Bay  State 
Trust  Company,  the  bank  upon  which  it  was  drawn. 
The  Bay  State  Trust  Company  paid  it  as  Haven's 
check,  marked  it  "Paid,"  and  charged  the  amount  to 
Haven's  account.  Three  days  afterwards  it  was  discov- 
ered that  the  drawer's  (Haven's)  sig-nature  was  forg-ed. 
and  the  paper  was  returned  through  the  same  channel 
to  Neal  &  Quimby,  the  plaintiffs,  who  refunded  the 
amount,  and  in  their  tu^-n  presented  it  to  Coburn 
the  defendant,  and  demanded  of  him  to  refund  the 
amount  in  his  turn,  which  he  refused  to  do;  hence 
this  action  for  money  had  and  received  to  enforce  such 
refunding.  It  is  conceded  that  Neal  &  Quimby  cannot 
maintain  this  action  unless  the  Bay  State   Trust  Com- 


170  CHECKS  [vol  I 

Neal  V.  Coburti 

pany  could  do  so  had  all  the  intermediate  indorsers  re- 
fused to  refund.  The  question  therefore  is:  Assum- 
ing- the  g-ood  faith  of  all  parties,  'who  shall  bear  the 
loss  in  such  case, —  the  first  innocent  indorser  for  value, 
or  the  bank  which  accepted  the  paper  as  g-enuine,  and 
paid  it  as  the  check  of  its  depositor? 

Since  a  check  belong-s  to  that  class  of  written  instru- 
ments called  "commercial  paper,"  the  question  stated 
is  not  so  much  one  of  abstract  justice  in  the  particular 
case,  as  it  is  of  what  is  the  established  or  workable 
rule  in  this  class  of  cases.  Commercial  paper  has  long- 
been  g-overned  by  special  rules,  which,  while  desig-ned 
to  insure  justice,  are  also  desig-ned  to  insure  the  free 
and  safe  use  of  an  indispensable  commercial  ag-enc3^ 
The  commercial  world  needs  and  seeks  for  the  plain 
workabhe  rule,  rather  than  for  the  somewhat  uncertain 
abstract  rig-ht  in  each  case.  We  think  such  a  rule, 
decisive  of  this  case,  has  been  longf  and  firmly  estab- 
lished. 

A  check  is  in  form  and  nature  a  species  of  bills  of 
exchang-e,  and  is  f>7-o  tanto  g-overned  by  the  same  rules 
(Foster  v.  Paulk,  41  Me.  425);  hence  decisions  as  to 
bills  of  exchang-e  upon  this  question  are  applicable  to 
this  case.  In  1715,  in  an  action  by  an  indorsee  ag-ainst 
the  acceptor  of  a  bill  of  exchang-e,  tried  before  Lord 
Raymond  in  the  king-'s  bench  court, sitting- at  Guild hal], 
to  hear  commercial  cases,  it  was  held  that  the  accept- 
ance sufficiently  proved  the  sig-nature  of  the  drawer. 
Evidence  o'ifered  by  the  acceptor  to  affirmatively 
prove  the  bill  to  be  a  forgfery  was  rejected,  one  of  the 
reasons  gfiven  being-  "the  dang-er  to  neg-otiable  notes." 
Jenys  v.  Fowler,  2  Strang-e,  931.  In  1762,  before 
Lord  Mansfield,  in  the  king-'s  bench,  then  also  sitting- 
at  Guildhall,  was  tried  an  action  for  money  had  and  re- 
ceived to  recover  back  mone}^  paid  to  an  innocent  indor- 
see of  a  bill  of  exchang-e  by  the  drawee.  The  sig-nature 
of  the  drawer  was  forg-ed.  Lord  Mansfield  stopped 
the  defendant's  counsel,  saying-  the  case  could  not  be 
made  plainer  by  argument,  and  ordered  judgement  for 
the  defendant.     Price  v  Neal,  3   Burrows,    1355.     In. 


B  CAS]  CHECKS  171 

Neal  V.  Coburu 

1815  the  question  came  before  the  common  pleas  also 
then  sitting-  in  London.  The  banker  soug-ht  by  an  ac- 
tion for  money  had  and  received  to  recover  back  mon- 
ey paid  by  him  to  an  innocent  holder  of  a  bill  of  ex- 
chang-e  bearing  a  forg-ed  acceptance  of  a  correspondent 
of  the  banker's.  The  plaintiff  was  nonsuited.  Smiths. 
Mercer,  6  Taunt.  76.  In  1882  the  Eng-lish  "Bills  of 
Kxchang-e  Act"  was  passed,  "to  codify  the  law  re- 
lating to  bills  of  exchang-e,  cheques  and  promissory 
notes."  In  section  54  it  was  enacted  that  "the  accept- 
or of  a  bill  by  accepting-  it  is  precluded  from  denying^ 
to  a  holder  in  due  course  the  existance  of  the  drawer, 
the  genuineness  of  his  signature,  and  his  capacity"  and 
authority  to  draw  the  bill."  4  Evng-.  Ruling- Cas.  159, 
160.  The  rule  stated  by  Lord  Raymond,  in  1715,  seems 
to  have  decome  firmly  established  in  that  great  com- 
mercial country. 

In  this  country  the  earliest  published  judicial  decision 
upon  the  question  appears  to  have  been  made  in  1802 
by  the  supreme  court  of  Pennsylvania.  An  innocent 
holder  of  a  check  for  value  presented  it  for  deposit  to 
his  credit  in  the  bank  upon  which  it  was  drawn.  The 
bank  received  it,  and  credited  the  amount  to  the  holder, 
and  debited  the  same  to  the  supposed  drawer.  It  soon 
proved  to  be  a  forgery,  whereupon  the  bank  charged 
the  amount  back  to  the  holder's  account.  The  holder 
then  brought  an  action  against  the  bank,  and  recovered 
judgment.  Levy  v.  Bank,  1  Bin.  27.  In  1825  a  case 
similar  in  principle  came  before  the  United  States  su- 
preme court,  which  always  decides  for  itself  questions 
of  general  commercial  law  as  applicable  to  the  whole 
country.  The  Bank  of  the  United  States  remitted 
to  the  Bank  of  Georg-ia  papers  purporting-  to  be 
bank  notes  of  the  latter  bank,  which  were  received 
and  credited  to  the  account  of  the  former  bank.  Some 
days  afterwards  the  supposed  notes  were  found  to  be 
counterfeit,  and  the  Bank  of  Georgia  tendered  them 
back  to  the  United  States  Bank,  and  charg-ed  the  amount 
back  to  that  bank,  and  refused  to  acknowledg-e  an}'  in- 
debtedness for  them.    The  United  States  Bank  brought 


172  CHECKS  [vol  I 

Neal  V,  Coburn 

an  action  for  balance  of  account  stated,  and  for  money 
had  and  received,  and  was  held  and  entitled  to  recover 
the  amount  so  deposited.  Bank  of  United  States  v. 
Bank  of  Georgia,  10  Wheat.  333.  This  decision  does 
not  appear  to  have  been  questioned  in  an}^  federal 
court.  The  applicability  of  this  decision  is  manifest 
when  it  is  recalled  that  the  acceptor  of  a  bill  of  exchang-e 
in  the  same  categ"ory  as  the  maker  of  a  note.  If  one 
who  pays  what  purports  to  be  his  note  cannot  recover 
the  money  back,  no  more  can  one  who  pays  what  pur- 
ports to  be  a  bill  of  exchange  or  check  drawn  upon  him. 

In  1820,  five  years  earlier  than  the  case  in  10  Wheat, 
a  similar  case  occurred  in  Massachusetts  between  two 
banks  as  to  the  counterfeit  bills  of  one  of  them,  which 
it  received  from  the  other,  and  paid  as  g-enuine.  It  was 
held  that  it  could  not  recover  back  the  money  paid. 
Gloucester  Bank  v.  Salem  Bank,  17  Mass.  33.  As 
late  as  1890  the  supreme  court  of  Massachusetts  stated 
the  rule  as  follows:  "In  the  usual  course  of  business, 
if  a  check  purporting  to  be  sig-ned  by  one  of  its  depos- 
itors is  paid  by  a  bank  to  one  who,  finding-  it  in  circula- 
tion or  receiving  it  from  the  payee  by  indorsement, 
took  it  in  good  faith  for  value,  the  money  cannot  be  re- 
covered back  on  the  discovery  that  the  check  is  a  for- 
gery." First  Nat.  Bank  v.  First  Nat.  Bank,  151 
Mass.  282,  24  N.  F.  44. 

In  a  New  York  case,  in  1850, the  bank  upon  which  a 
draft  was  drawn  refused  payment  for  want  of  funds 
of  the  drawer,  whereupon  Goddard,  the  correspondent 
of  the  supposed  drawer,  being  informed  of  the  draft, 
but  without  seeing-  it,  left  his  owl  check,  for  its  pay- 
ment, which  amount  was  remitted  to  the  holders  of  the 
draft.  The  next  day,  Goddard,  on  seeing-  the  draft, 
found  it  to  be  forg-ed.  Held,  however,  that  he  could 
not  recover  back  the  amount  of  the  holder.  Goddard 
-J.  Bank,  4  N.  Y.  149.  In  1871  a  bank  in  New  York 
paid  to  an  innocent  holder  a  forged  draft  drawn 
upon  it,  and  then  sought  to  recover  the  money  back. 
The  court  rendered  judg-ment  for  the  defendant  as 
in  the  earlier  case,  using  this  languag-e:   "For  more 


B  CAS]  CHECKS  173 

Neal  V.  Coburn 

than  a  century  it  has  been  held  and  decided  without 
question  that  it  is  incumbent  upon  the  drawee  of  a  bill 
to  be  satisfied  that  the  siofnature  of  the  drawer  of  the 
bill  is  g-enuine, —  that  he  is  presumed  to  know  the 
handwriting-  of  his  correspondent;  and,  if  he  accepts 
or  pays  a  bill  to  w^hich  the  drawer's  name  has  been  for- 
g-ed,  he  is  bound  by  the  act,  and  can  neither  repudiate 
the  bill  nor  recover  the  money  paid.  *  *  *  A  rule  so 
well  established  and  so  firmly  rooted  in  the  jurispru- 
dence of  the  country  ought  not  to  be  overruled  or  dis- 
reg-arded."  National  Park  Bank  v.  Ninth  Nat.  Bank, 
46  N.  Y.  80,  81. 

Other  courts  have  also  recog-nized  the  rule  more  or 
less  explicitly.  Commercial  Bank  t-.  National  Bank, 
30  Md.  11;  Germania  Bank  v.  Boutell,  60  Minn.  192,  62 
N.  W.  327;  St.  Albans  f.  Farmers'  Bank,  10  Vt.  141; 
Star  Ins.  Co.  v.  State  Bank,  60  N.  H.  442;  Deposit 
Bank  V.  Fayette  Nat.  Bank,  90  Ky.  22,    13  S.  W.  339. 

The  only  allusion  to  the  rule  we  have  found  in  the 
published  opinions  of  this  court  is  in  Belknap  v.  Davis, 
19  Me.  457,  in  1841,  where,  in  an  action  by  the  holder 
ag-ainstthe  acceptor  of  a  bill  of  exchang-e,  it  was  held 
that  '  'the  acceptance  admits  the  signature  of  the  drawer 
and  the  authority  to  draw."  So  far  as  it  goes,  this 
would  seem  to  be  in  the  same  line  with  the  decisions 
above  cited  and  quoted  from,  and  would  seem  to  indi- 
cate that  the  rule  so  long  and  firmly  upheld  by  those 
decisions  is  in  harmony  with  the  law  of  commercial  pa- 
per in  this  state. 

In  some  cases  the  courts  have  been  led  to  inquire 
whether  the  condition  of  the  holder  had  changed  be- 
tween the  payment  of  the  check  and  notice  to  him  of 
the  forgery,  and  to  hold  that,  if  the  holder  had  suffered 
no  loss  by  reason  of  the  payment,  he  should  refund 
the  amount  to  the  bank  or  drawer.  The  rule  cited 
does  not  make  any  such  distinction, —  does  not  call  for 
any  inquiry  into  the  condition  of  the  holder.  To  do 
so  is  to  abandon  the  rule,  and  with  it  all  certainty. 
It  would  leave  every  person  receiving  payment  on 
a     check    in     complete    uncertainty     as     to    whether 


174  CHECKS  [vol  I 

Neal  V.  Coburn 

and  when  it  was  in  fact  finally  paid.  It  would  be  a 
destructive  blow  to  the  usefulness  of  checks  as  an  in- 
strumentality of  trade.  It  is  also  ag^ainst  the  reason 
and  equity  of  the  rule  as  stated  by  the  courts  recog- 
nizing it,  and  hence  is  inconsistent  with  the  rule. 
Wherever  the  rule  is  upheld,  the  doctrine  of  such 
cases  must  be  rejected. 

The  reason  usually  g-iven  for  the  rule  is  that  it  is 
impracticable  for  the  indorsee  or  holder  of  a  bill  of 
exchange  or  check  to  know  or  learn  whether  the  sig- 
nature of  the  drawer  is  g-enuine,  and  that 
Kf^i't'ov'-Pr"  the  bank  or  other  drawee  has  the  best 
KnowiidV^  means  of  knowing-  or  learning  the  fact;  or, 
as  sometimes  expressed,  the  bank  may  be 
presumed  to  know  the  signature  of  its  depositor,  and 
the  acceptor  the  sig"nature  of  his  business  correspond- 
ent. Lord  Mansfield,  in  Pric8;  v.  Neal,  sup7'a,  com- 
pared the  equities.  He  said  that  the  action  for  money 
had  and  received  could  not  be  maintained,  unless  it  was 
ag-ainst  conscience  in  the  defendant  to  retain  it,  and 
that  it  was  notagfainst  conscience  for  an  innocent  holder 
to  retain  money  paid  to  him  by  the  drawee  of  a  bill  of 
exchang-e  which  he  had  in  g-ood  faith  paid  value  for. 
As  between  parties  equally  innocent,  there  seems  to  be 
no  more  equit}^  in  throwing-  off  the  loss  from  one  to  the 
other  than  in  leaving-  it  where  it  fell.  In  cases  like 
these,  however,  where  the  loss  fell  in  the  reg-ular 
course  of  business  upon  the  bank,  which  could  have 
known  and  should  have  known  the  forgery,  it  seems 
positively  inequitable  to  throw  off  that  loss  upon  an 
innocent  man  who  had  much  less  oppor- 
Forged  Checks-  tuuitv  of  kuowing.  As  also  Said  by  L/ord 
Mistake.  Mausfield,  in  Price  v.  Neal,  if  negligence  is 

to  be  considered,  it  was  as  much,  if  not 
more,  in  the  drawee  or  bank,  as  in  the  holder.  But 
w'hatever  the  reason  or  equity  of  the  rule,  and  however 
much  it  may  be  criticised  by  text  writers  and  theorists, 
it  has  been  so  long  established  and  so  explicitly  recog- 
nized by  the  courts  in  commercial  communities  that 
it  should  stand  as  the  rule  until  modified  by  legislative 


B  CAS]  CHECKS  175 

Neal  V.  Coburn 

action.  It  evidently  has  been  found  to  be  a  workable 
rule,  and  its  plainness  and  certainty  should  not  be 
obscured  by  fine  judicial  distinctions,  confusing-  to  the 
lay  mind. 

It  has  been  sug-g-ested  that  this  rule  breaks  against 
another  rule  of  the  law  of  commercial  paper,  viz.  that 
the  defendant,  by  indorsing-  the  check,  g-uaranteed  to 
every  subsequent  holder  the  g-enuineness  of  the  sig-- 
nature  of  the  drawer.  But  the  bank  upon 
which  the  check  was  drawn  did  not  become  orTri^Mbidel! 
a  holder.  It  did  not  purchase  the  check. 
The  bank  paid  it, — ^exting-uished  it.  It  was  no  longfer 
a  check,  and  could  no  longer  have  a  holder  as  such. 
It  had  become  merely  a  voucher.  Bank  v.  Maxfield, 
83  Me.  576,  22  Atl.  479. 

The  plaintiffs  cite  cases  in  which  it  was  found  that 
the  bank  was  induced  by  the  conduct  of  the  holder  to 
assume  the  check  to  be  genuine  without  investigation. 
In  other  cases  it  was  found  that  the  holder  knew  or  had 
reason  to  know  of  the  forgery,  or  was  put  upon  inquiry 
before  taking  the  check.  In  these  cases  it  was  held 
that  the  holder  was  without  the  rule. 

In  this  case,  however,  no  such  facts  can  be  found. 
Haven,  the  supposed  drawer,  was  occupying  a  sum- 
mer cottage  in  the  neighborhood.  The  check  was 
written  upon  one  of  his  blanks  taken  from  his  check 
book.  The  signature  was  so  good  an  imitation  that  the 
bank  accepted  it.  Crew,  the  forger,  had  previously 
received  genuine  checks  from  Haven.  He  was  a  boarder 
at  the  defendant's  hotel  or  boarding  house.  While, 
after  the  event,  the  defendant  now  believes  Crew  to 
have  been  an  impostor,  nothing  in  the  case  shows  that 
he  so  believed  or  had  reason  to  so  believe  before  the 
event.  It  is  true,  he  was  told  by  Crew  that  Haven 
desired  the  check  to  be  held  about  three  weeks  before 
presentment;  but  that  was  no  reason  for  suspecting 
the  genuineness  of  the  signature.  It  might  have 
generated  a  doubt  as  to  the  solvency  of  Haven,  but 
no  more.  While,  perhaps,  a  banker  would  have 
hesitated  to  accept  the  check   under  the  circumstances, 


176  CHECKS  [vol  I 

Notes 

we  find  in  them  nothing"  that  would  naturally  have 
deterred  a  man  like  the  plaintiff.  In  the  New  York 
case,  Goddard  :•.  Bank,  supra,  the  circumstances, 
surroundinor  the  transfer  of  the  check  from  the  forger 
to  the  first  holder  were  even  more  suspicious  than  here, 
and  were  held  to  be  insufficient  to  affect  the  holder. 

We  find  the  plaintiff  was  an  innocent  holder  for  value,^ 
and  that  the  loss  b}^  the  forg-ery  fell,  in  the  course 
of  business,  upon  the  bank.  We  hold  that  the  defend- 
ant, though  he  has  suffered  no  loss,  is  protected  by 
the  rule  cited,  and  that,  under  the  rule,  the  loss  can- 
not be  thrown  off  the  bank  upon  him. 

It  is  conceded  that  the  defendant's  verbal  promise  to 
refund,  made  under  a  misapprehension  of  the  lavv^,  was 
without  consideration,  and  hence  not  binding. 

Plaintiffs  nonsuit. 


NOTES. 

Banks — Forgery — Signature  of  Customer— Payment  by  Mistake — 
Loss. — A  bank  is  bound  to  know  the  signature  of  its  depositor,  and 
therefore  if  it  pays  out  money  on  a  check  to  which  its  depositor's  name 
has  been  forg-ed,  to  a  bona  fide  holder  for  value,  it  cannot  recover 
the  money  so  paid  out. 

England. — Smith  v.  Mercer,  6  Taunt.  76  ;  Price  v.  Neale,  3  Burr. 
1355  ;  Bass  v.  Clive,  4  M.  «&  S.  13  ;  Poolev  v.  Brown,  11  C.  B.  N.  S. 
566,  103  E.  C.  L.  566 ;  Smith  v.  Chester,  1  t.  R.  655  ;  Barber  v.  Ging-- 
ell,  3  Esp.  N.  P.  60. 

United  States.— \^.  S.  Bank  v.  Georgia  Bank,  10  Wheat.  (U.  S.)  339. 

California. — Redington  v.  Woods,  45  Cal.  406,  13  Am.  Rep.  190. 

Illinois .—Qnincy  First  Nat.  Bank  v.  Ricker,  71  111.  439  ;  Chicago 
First  Nat.  Bank  v.  North  Western  Nat.  Bank,  152  111.  296,  43  Am. 
St.  Rep.  247. 

Kentucky.— T>epo<,it  Bank  v.  Fayette  Nat.  Bank,  90  Ky.  10. 

Louisiana. — Laborde  v.  Consolidated  Assoc,  4  Rob.  (La.)  190,  39 
Am.  Dec.  517  ;  Howard  v.  Mississippi  Valley  Bank,  28  La.  Ann.  727, 
26  Am.  Rep.  105. 

Maryland. — Commercial,  etc..  Bank  f.  Baltimore  First  Nat.  Bank, 
30  Md.  11,  96  Am.  Dec.  554;  Hardy  v.  Chesapeake  Bank,  51  Md.  562, 
34  Am.  Rep.  325. 

3/assar/iusetts. — Gloucester  Bank  v.  Salem  Bank,  17  Mass.  33 ; 
Mackintosh  v.  Eliot  Nat.  Bank,  123  Mass.  393  ;  Danvers  First  Nat. 
Bank  r.  Salem  First  Nat.  Bank,  151  Mass.  280. 

Minnesota. — Germania  Bank  v.  Boutell,  60  Minn.  189,  51  Am.  St. 
Rep.  519;  Bernheimer  v.  Marshall,  2  Minn.  78,  72  Am.  Dec.  79. 

Nebraska.— Otlesins  First  Nat.  Bank  v.  State  Bank,  22  Neb.  769,  3 
Am.  St.  Rep.  294. 


B  CAS]  CHECKS  177 

Notes 

New  Hampshire. Sia.T  F.  Iiis.  Co.  v.  State  Nat.  Bank,  60  N.  H. 
442. 

New  York. — National  Bank  v.  Grocers'  Nat.  Bank,  35  How.  Pr. 
(N.  Y.  C.  PI.)  412;  Salt  Springs  Bank  z'.  Sj^racuse  Sav.  Inst.,  62 
Barb.  (N.  Y.)  101  ;  Bank  of  Commerce  v.  Union  Bank,  3  N.  Y.  230  ; 
Goddard  v.  Merchants'  Bank,  4  N.  Y.  147  ;  National  Park  Bank  v. 
New  York  Ninth  Nat.  Bank,  46  N.  Y.  77,  7  Am.  Rep.  310;  White  v. 
Continental  Nat.  Bank,  64  N.  Y.  316,  21  Am.  Rep.  612;  National 
Bank  of  Commerce  v.  National  Mechanics'  Banking-  Assoc,  55  N. 
Y.  211,  14  Am.  Rep.  232  ;  Frank  v.  Chemical  Nat.  Bank,  84  N.  Y. 
209,  38  Am.  Rep.  501 ;  Carthage  First  Nat.  Bank  v.  Yost,  58  Hun. 
(N.  Y.)  606,  34  N.  Y.  St.  Rep.  180. 

Pennsylvatiia.—'Levy  v.  U.  S.  Bank,  4  Dall.   (Pa.)  234. 

Texas. — Rouvant  v.  San  Antonio  Nat.  Bank,  63  Tex.  610. 

Vermotit. — St.  Albans  Bank  v.  Farmers',  etc.,  Bank,  10  Vt.  141,  33 
Am.  Dec.  188. 

litest  Virginia. — Johnston  v.  Commercial  Bank,  27  W.  Va.  343,  55 
Am.  Rep.  315. 

In  Price  v.  Neale,  3  Burr,  1355,  decided  in  1762,  the  drawee  had 
accepted  and  paid  two  bills  of  exchange  which  had  been  forged  by 
one  Lee,  who,  as  the  reporter  observes,  "has  been  since  hanged  for 
forgery."  The  drawee  sued  the  holder  to  recover  back  the  money 
paid.  It  was  held  that  the  plaintiff  could  not  recover.  Lord  Mans- 
field said  ;  "It  was  incumbent  upon  the  plaintiff  to  be  satisfied  that 
the  bill  drawn  upon  him  was  the  drawer's  hand  before  he  accepted, 
or  paid  it  ;  but  it  was  not  incumbent  upon  the  defendant  to  inquire 
into  it.  *  *  *  The  plaintiff"  lies  by  for  a  considerable  time  after 
he  has  paid  these  bills,  and  then  found  out  that  the^'  were  forged, 
and  the  forger  comes  to  be  hanged.  He  made  no  objection  to  them, 
at  the  time  of  paj-ing  them.  Whatever  neglect  there  was,  was  on 
his  side." 

In  deciding  a  case  upon  the  question  as  to  whether  a  bank  could 
recover  money  paid  out  on  its  own  bank  notes,  Parker,  C.  J.,  in 
Gloucester  Bank  i'.  Salem  Bank,  17  Mass.  42,  uses  this  language  : 
"The  question  in  this  case  is  whether,  as  between  these  parties 
equally  innocent  and  ignorant,  the  loss  shall  remain  where  the 
chance  of  business  has  placed  it,  or  shall  be  shifted  back  upon  the 
Salem  Bank,  who  may  be  considered  as  having,  by  good  fortune, 
rid  themselves  of  it.  In  all  such  cases,  the  just  and'  sound  principle 
of  decision  has  been  that  if  the  loss  can  be  traced  to  the  fault  or 
negligence  of  either  party,  it  shall  be  fixed  upon  him.  Generally, 
where  no  fault  or  negligence  is  imputable,  the  loss  has  been  suffered 
to  remain  where  the  course  of  business  placed  it." 

"This  has  been  the  rule  almost  universally  laid  down  by  the 
courts,  the  law  declaring  that  as  between  parties  equally  innocent 
the  loss  must  remain  where  the  course  of  business  has  placed  it. 
With  singular  unanimity,  however,  the  text  writers  hav-e  modified 
this  rule  with  the  proviso,  "unless  it  can  be  shown  that  the  pa^-ee 
or  indorsee,  the  party  receiving  the  money,  will  in  no  way  be  prej- 
udiced by  the  re-payment." 

"Many  modern  text  writers,  some  of  them  of  learning  and  ability, 
have  assailed  the  correctness  of  this  doctrine,  contending  that  the 
general  rule  as  to  money  paid  under  mistake  of  fact  should  apply,  and 
that  the  law  ought  to  be  that  the  bank,  although  at  fault  in  not  dis- 
covering the  forgery  of  its  customer's  signature,  can  recover  evea 
B  CAS — 12 


178  CHECKS  [vol  1 

Notes 

from  an  innocent  holder,  if  he  will  then  be  in  no  worse  condition 
than  if  the  bank  had  refused  to  pay  the  draft  or  check.  2  Pars. 
Notes  and  Bills,  80  ;  Morse  on  Banks  and  Banking,  c.  33  ;  Dan.  Neg. 
Instr.  c.  42  ;  Am.  Law  Rev.,  April,  1875,  p.  411  ;  note  to  People's 
Bank  v.  Franklin  Bank,  88  Ten.  299,  17  Am.  St.  Rep.  884.  We  shall 
not  enter  upon  a  consideration  of  the  soundness  of  the  argumeut 
against  the  doctrine,  or  as  to  which  rule  we  would  adopt  if  the  ques- 
tion was  res  infegra,  because  we  do  not  feel  at  liberty  to  overrule  or 
disreg-ard  a  doctrine  so  well  established  and  so  firmly  rooted  in  the 
commercial  law  of  the  country.  If  the  rule  is  incorrect  or  works 
badly  in  practice,  its  change  must  be  left  to  the  legislature.  We 
may  say,  however,  that  the  opponents  of  the  doctrine  seem  to  have 
found  no  followers  in  the  courts.  We  maj' also  suggest  that  perhaps 
the  courts  themselves  have  given  the  opponents  of  this  doctrine  an 
unnecessary  vantage  ground,  by  frequently  placing  it  exclusively 
on  the  narrow  ground  of  actual  neg'ligence  on  part  of  the  drawee  in 
mot  discovering  the  forgery,  becavise  he  was  bound  to  know  the 
signature  of  his  own  customer  or  correspondent.  It  is  undoubtedly 
true  that  he  is  in  a  better  position  than  a  stranger  to  know  his 
customer's  signature,  and  that  men  have  a  right  to  deal  with  checks 
and  drafts  on  that  assumptiott";  but  it  does  not  seem  to  us  that  the 
doctrine  rests  entirely  on  this  narrow  basis  of  actual  negligence  on 
the  part  of  the  drawee.  The  money  of  the  commercial  world  is  no 
longer  coin.  The  exchanges  of  commerce  are  now  made  almost 
entirely  by  means  of  drafts  and  checks.  It  was  largely  in  deference 
to  these  facts  that  the  recovery  of  money  paid  on  paper  of  this  kind, 
to  which  the  drawer's  signature  was  forged,  was  made  an  exception 
f  o  the  general  rule  as  to  the  recovery  of  mone^'  paid  out  under  mis- 
take of  fact."  Pt-r  MiTCHEivi.,  J.,  In  Germania  Bank  v.  Boutell,  60 
Minn.  192,  51  Am.  St.  Rep.  519. 

The  text  writers  are  in  almost  universal  opposition  to  the  rule  as 
stated  in  the  above,  btit  the  only  case  that  supports  them  is  People's 
Bank  v.  Franklin  Bank,  88  Tenn.  299,  17  Am.  St.  Rep.  884. 

In  Commercial,  etc..  Bank  v.  Baltimore  First  Nat.  Bank,  30  Md. 
11,  96  Am.  Dec.  554,  H.,  a  stranger  of  respectable  appearance, 
opened  an  account  with  the  former  bank,  and  deposited  a  check  on 
the  latter  bank  for  four  thousand  six  hundred  dollars,  purporting  to 
have  been  drawn  by  A.  to  the  depositor's  order.  On  the  following 
day  it  was  sent  through  the  clearing-  house,  and  the  drawee  bank 
pronounced  the  check  genuine  and  charged  it  to  A's  account.  H., 
two  days  afterwards,  called  at  the  Commercial  Bank  with  his  bank 
book,  tilled  up  a  check  for  four  thousand  five  hundred  dollars,  paj^- 
able  to  his  order,  which  was  paid  by  the  teller  after  inquiry  as  to 
iiis  identity  and  the  state  of  his  account.  One  week  afterwards  it 
"was  discovered  that  the  check  was  a  forgery,  and  notice  thereof 
Avas  given  to  the  Commercial  Bank  and  repayment  of  the  money 
<lemanded.  Upon  refusal,  the  First  National  Bank,  having  refunded 
"to  A.  the  amount  of  the  forged  check,  sued  the  Commercial  Bank  to 
recover  the  amount  thus  paid.  It  was  held  that  the  bank  was  bound 
to  know  its  depositor's  signature,  and  that  the  plaintiffs  were  not  en- 
titled to  recover.  The  court  said:  "There  is  *  *  *  no  reason 
why  the  loss  as  between  parties  thus  equally  innocent  and  equallj' 
deceived,  but  where  one  is  bound  to  know  and  act  upon  his  knowl- 
■edge,  and  the  other  has  no  means  of  knowledge,  should  be  thrown 
upon   the   latter  in   exoneration  of  the  former.     The  safest  rule  for 


13  CAS]  CHECKS  179 

First  Nat.  Bank  of  Marshalltown  v.  Marshalltown  State  Bank 

the  commercial  public,  as  well  as  that  most  consistent  with  justice, 
is  to  allow  the  loss  to  remain  where,  by  the  course  of  business,  it 
has  been  placed." 

In  Deposit  Bank  v.  Fayette  Nat.  Bank,  90  Ky.  22,  in  deciding  that 
the  drawee  bank  could  not  recover  money  paid  out  to  another  bank 
on  a  forged  check  of  one  of  its  depositors.  Pryor,  J.,  uses  this 
language.  "There  is  no  precedent  in  this  court  on  the  question, 
still  we  are  not  inclined  to  follow  the  views  of  text  writers,  in  the 
face  of  so  manj-  adjtidications  on  the  subject,  and  with  no  case  pre- 
sented that  goes  further  than  to  modify  the  rule  in  cases  where  bad 
faith  or  negligence  is  to  be  attributed  to  the  holder  or  indorser  when 
taking  the  check." 

Statute  in  Pennsylvania. — The  law  has  been  changed  by  statute  in 
Pennsylvania  (Act  of  April  5,  1849,  P.  L.  426),  under  which  the 
mere  acceptance  or  payment  of  forged  paper  is  no  longer  of  itself  a 
bar  to  the  recover}^  of  the  money  from  the  party  receiving  it,  even 
though  it  be  a  bank  or  drawee  ;  but,  in  order  to  recover  under  this 
statute, notice  of  the  discovery  of  the  forgery  must  be  given  promptl3'. 
Trademen's  Nat.  Bank  v.  Third  Nat.  Bank,  66  Pa.  St.  435  ;  Cham- 
bers V.  Union  Nat.  Bank,  78  Pa.  St.  205;  Corn  Exch.  Nat.  Bank  v. 
National  Bank  of  Republic,  78  Pa.  St.  233  ;  Iron  City  Nat.  Bank  v. 
Fort  Pitt  Nat.  Bank,  159  Pa.  St.  46. 

A  bank  received  a  check  on  December  19,  paid  it  and  entered  it  on 
its  books  as  paid,  and  then  dismissed  it  from  further  attention. 
Five  days  afterwards  the  bank's  attention  was  called  to  the  check, 
and  an  investigation  was  made  which  resulted  in  the  discovery  that 
the  drawee's  name  had  been  forged.  In  the  meantime,  the  defend- 
ant bank,  which  had  received  the  money,  paid  it  out.  Under  these 
circumstances  the  court  held  that  there  was  a  want  of  the  due  dili- 
gence required  by  the  statute,  and  the  bank  was  not  entitled  to 
recover  the  money  back.  Iron  City  Nat.  Bank  v.  Fort  Pitt  Nat. 
Bank,  159  Pa.  St.  46. 


First  Nat.  Bank  of  Marshalltown 

V. 

Marshalltown  State  Bank. 

[Supreme  Court  of  Iowa,  Jan.  2^,  iSgg.) 

Payment  of  Forged  Checi< — Recovery.* — Where  a  bank  upon  which 
a  check  is  drawn  pays  it  upon  the  forged  signature  of  the  drawer, 
to  a  good-faith  holder,  the  money  cannot  be  recovered  from  such 
holder  as  paid  under  a  mistake  of  fact;  unless  the  holder  was  negli- 
gent in  not  making  due  inquiry  when  he  took  the  check. 

Same — Same — Negligence. — The  negligence  of  the  bank  which 
cashes  a  check  and  puts  it   into  circulation    cannot    be    imputed    to 

*See  Neal  et  al.  v.  Coburn  (Me.),  ante,  and  notes. 


180  CHECKS  [voiv  I 

First  Nat.  Bank  of  Marshalltown  v.  Marshalltowti  State  Bank 

another  bank  to  which  it  is  sent,  and  by  which  it  is  credited  to  the 
first  mentioned  bank. 

Same— Forged  Indorsement. — Where  a  check  to  which  the  signa- 
ture of  the  drawer  is  forged  is  paid  by  the  drawee  bank  to  a  good- 
faith  holder,  the  fact  that  the  payee's  indorsement  is  also  forged  is- 
immaterial  to  the  drawee. 

Appeal  by  plaintiff  from  Marshall   county  district 
court.     Aifirmed.. 

One  F.  M.  Smith,  having-  in  his  possession  a  check 
drawn  on  plaintiff  bank,  payable  to  the  order  of  Smith 
&  Hauser,  and  purporting-  to  be  signed  by 
one  J.  R.  Bradbury,  indorsed  the  payee's 
name  thereon,  and  presented  it  to  the  Citizens'  Bank  of 
Union,  and  obtained  of  this  bank  the  cash  therefor. 
This  last-named  bank  indorsed  the  check  as  follows:. 
"Pay  F.  A.  Balch,  cashier,  or  order.  Citizens'  Bank, 
Union,  Iowa,  C.  B.  Lawrence,  Cashier," — and  for- 
warded it  to  the  Marshalltown  State  Bank,  of  which 
Balch  was  cashier,  and  received  credit  for  the  amount 
thereof  on  the  books  of  the  last-named  bank.  The 
transaction  was  concluded  by  the  Marshalltown  State 
Bank  indorsing-  the  check,  and  presenting- it  to  plaintiff 
bank,  which  cashed  it.  Bradbury,  the  purported 
drawer  of  the  check,  was  a  depositor  in  the  last-named 
bank.  A  few  days  after  the  check  was  paid,  plaintiff 
discovered  that  the  sig-nature  of  the  drawer  was  forgfed, 
and  thereafter  this  action  was  beg-un,  to  recover  the 
amount  paid.  A  jury  was  waived  by  the  parties,  and 
the  case  tried  to  the  court.  From  a  judgment  in  de- 
fendant's favor,  plaintiff  appeals.     Afflnned. 

Binford  &  Snelliug-,   for  appellant. 

C.  E.  A /lj?-ook  3.nd  E.  F.  Biiiford,  for  appellee. 

Waterman,  J.  A  few  facts  in  addition  to  those 
stated  above  are  shown  by  the  record,  and  something-  is 
claimed  for  them  by  the  parties.  We  shall  set  them 
out,  althoug-h,  in  our  view  of  the  case,  they  do  not 
affect  the  conclusion  at  which  we  arrive.  One  Hauser 
was  engag-ed  in  business  near  Union, and  Smith,  whose 


B  CAS]  CHECKS  .  181 

First  Nat.  Bank  of  Marshalltown  v.  Marshalltown  State  Bank 

misdeed  gives  rise  to  this  contention,  was  stopping- 
with  him.  Shortly  prior  to  the  transaction  complained 
of,  Hauser  sold  some  live  stock  to  Bradbury,  and 
Smith,  who  collected  the  money  therefor,  took  from 
Bradbury  a  check,  payable  to  the  order  of  Smith  & 
Hauser.  This  check  Smith  indorsed  in  the  name  of 
Smith  «&  Hauser,  and  cashed  at  the  bank  of  Union. 
There  was  in  fact  no  such  firm  as  Smith  &  Hauser. 
The  testimony  shows  that  the  check  we  are  now  speak- 
ing- of  was  made  b}^  Bradbury,  paj'able  to  the  firm,  at 
Smith's  request,  and  that  Hauser  knew  nothing-  of 
this  fact,  or  of  Smith's  indorsement  of  the  paper. 

2.  Some  of  the  text  writers  on  negfotiable  paper  .lay 
down  the  rule  that,  when  a  bank  upon   which  a  check 
is  drawn  pays  it  upon  the  forged   signature 
of  the  drawer,  the  money  can    be   recovered     P''5™?L«^ 

For£r**ii  Check 

as  payed  under  a  mistake  of  fact.  Stor3%  Recovery. 
Prom.  Notes,  §§  379,  529;  2  Pars.  Notes  & 
B.  80.  Others,  while  recognizing  a  different  rule,  in- 
cline to  the  opinion  that  the  one  just  stated  is  the  most 
equitable.  2  Daniel,  Neg.  Inst.  c.  48,  §  13.  But,  what- 
ever the  text  writers  may  think,  a  long  line  of  authorit}^ 
sustains  the  proposition  that,  as  between  the  drawee 
and  a  good-faith  holder  of  a  check,  the  drawee  bank  is 
to  be  deemed  the  place  of  final  settlement,  where  all 
prior  mistakes  and  forgeries  shall  be  corrected  and  set- 
tled at  once  for  all;  and  if  overlooked,  and  payment  is 
made,  it  must  be  deemed  final.  There  can  be  no  re- 
covery over.  Price  v.  Neal,  3  Burrows,  1355;  Red- 
ington  V.  Woods,  45  Cal.  406;  Bank  t-.  Ricker,  71  111. 
439;  First  Nat.  Bank  of  Chicago  v.  Northwestern 
Nat.  Bank,  152  111.  296,  38  N.  E.  739;  Deposit  Bank 
of  Georgetown  v.  Fayette  Nat.  Bank,  90  Ky.  10,  13  S. 
W.  339;  Commercial  &  Farmers'  Nat.  Bank  of  Balti- 
more V.  First  Nat.  Bank  of  Baltimore,  30  Md.  11  ; 
Star  Fire  Ins.  Co.  v.  New  Hampshire  Nat.  Bank,  60 
N.  H.  442;  Bank  v.  Peyton  (Tex.  Civ.  App.)  39  S.  W. 
223;  St.  Albans  Bank  v.  Farmers'  &  Mechanics'  Bank, 
10  Vt.  141;  National  Park  Bank  of  New  York  v. 
Ninth  Nat.  Bank,  46  N.  Y.  77;  Bank  v.  Boutell  (Minn.) 


182  CHECKS  [vol  : 

First  Nat.  Bank  of  Marshalltown  v.  Marshalltown  State  Bank 

62  N.  W.  327.  See,  further,  5  Am.  &  Eng-.  Knc.  Law, 
1071.  This  doctrine  is  founded  by  some  courts  upon 
the  thouofht  that  the  drawee  bank  is  conclusively  pre- 
sumed to  know  the  signatures  of  its  depositors.  This, 
however,  may  be  too  narrow  a  basis.  It  may  be  well 
that  such  a«rule  is  demanded  by  the  necessities  of  busi- 
ness in  these  times,  when  the  currency  of  the  commer- 
cial world  is  composed  so  larg-ely  of  checks  and  drafts. 
Whether  it  is  the  better  rule  or  the  one  most  consonant 
with  reason  and  justice  is  no  long-er  an  open  question. 
The  discussion  seems  to  have  been  foreclosed  by  the 
overwhelming"  weisfht  of  authority.  The  rule,  how- 
ever, has  one  qualification,  introduced  bv  some  cases, 
and  which  we  feel  inclined  to  adopt.  When  the  holder 
of  the  check  has  been  neg^lig-ent  in  not  making*  due  in- 
quiry, if  the  circumstances  were  such  as  to  demand  an 
inquiry,  when  he  took  the  check,  the  drawee  may  re- 
cover. Tied.  Com.  Paper,  §  399;  First  Nat.  Bank  of 
Orleans  v.  State  Bank  of  Alma  (Neb.)  36  N.  W.  289; 
First  Nat.  Bank  of  Danvers  v.  First  Nat.  Bank  of  Sa- 
lem, 151  Mass.  280,  24  N.  E.  44.  The  appellant  seeks 
to  bring-  its  case  within  this  exception.  But  the  only 
neglig-ence  charg^ed  here  is  ag-ainst  the  Bank  of  Union, 
which  first  cashed  the  check,  and  put  it  in  circulation. 
Clearly,  the  neg-lig^ence,  if  any,  of  that  bank, 
segiigenceT"  cannot  be  imputed  to  the  defendant.  If  the 
plaintiff  had  desired  to  take  advantag-e  of 
this  qualification  of  the  rule,  its  action,  under  the  facts 
here  shown,  should  have  been  ag-ainst  the  bank  which 
first  g-ave  currency  to  the  paper.  That  was  the  course 
taken  in  the  Nebraska  case  cited  above. 

3.  Plaintiff  claims,  further,  some  rig-hts  from  the 
fact,  as  it  asserts,  that  the  indorsement  of  Smith  & 
Hauser  was  forg-ed.  The  sig'ning  of  a  fictitious  name 
may  be  a  forgery.  People  v.  Warner  (Mich.)  62  N. 
W.  405.  We  concede  the  g-eneral  proposition  con- 
tended for  by  appellant  that  an  indorsement 
hXr^men't!*'  ^f  neg^otiable  paper  is  a  gfuaranty  of  the 
g-enuineness  of  all  prior  indorsements, 
though  we  must  add  that  this  rule  has  no  applicability- 


B  CAS]  CHECKS  183 

Guthrie  Nat.  Bank  v.  Gill 

under  the  facts  of  this  case.  If,  by  reason  of  this, 
forofed  indorsement,  plaintiff  has  been  led  to  pay  this, 
check  to  one  not  the  owner  of  it,  no  doubt  it  could  re- 
cover from  any  prior  indorser  upon  whose  g-uarant}'  it 
had  a  right  to  rely.  Levy  v.  Bank  (Neb.)  43  N.W.  354. 
But  how  has  plaintiff  been  injured  by  this  so-called 
"forg-ery"  of  an  indorsement?  The  party  to  whom  it 
paid  the  money  was  entitled  to  it,  if  the  payment  was 
to  be  made  at  all.  If  the  indorsement  had  been  g^en- 
uine,  it  could  not  have  recovered  from  Smith  &  Hauser 
on  the  gfround  that  they  were  indorsers  ;  for,  as  we 
have  seen,  as  between  all  g-ood-faith  parties  to  the  check, 
its  payment  by  the  drawee  is  final.  If  Smith,  who 
actually  made  this  indorsement,  did  so  in  bad  faith,  and 
with  knowledg-e  of  the  forg-ery,  he  is  still  liable  to  the 
bank,  not  on  his  indorsement,  but  because  of  his  fraud. 
The  drawee  ordinarily  has  no  recourse  upon  indorsers. 
If  an  indorsement  is  forg-ed,  yet,  if  the  money  Is  paid 
to  the  party  entitled  to  it,  the  drawee  has  no  reason  to 
complain,  and  no  rig"ht  of  action  over.  That  is  the 
case  here.  Plaintiff  is  liable  to  no  one  else  for  the 
amount  of  the  check.  It  is  in  no  worse  situation  than 
it  would  have  been  had  the  sig-nature  of  Smith  &  Hau- 
ser been  g-enuine.     Affirmed. 


Guthrie  Nat.  Bank 

GlLE. 

{Supreme  Court  of  Oklahojna,  Feb.  iS,  iSgS.) 

Drafts— Refusal  to  Pay— Liability  of  Bank.* — A  draft  drawn  in  the 
ordinary  form  does  not  constitute  an  equitable  assignment  pro  tatito- 
of  funds  in  the  hands  of  the  drawee  to  the  credit  of  the  drawer  before 
such  draft  has  been  accepted  or  presented  for  payment. 

Deposits — Rights  of  Check  Holder. — There  is  an  implied  promise 
on  the  part  of  a  bank,  when  receiving  deposits,  to  pay  them  out,  on 

*See  notes  at  end  of  case. 


184  CHECKS  [vol  I 

Guthrie  Nat.  Bank  v.  Gill 

the  checks  of  the  depositor,  to  anj-  person  in  whose  favor  he  may 
draw  the  same  ;  and  the  check  holder  is  subrog-ated  to  the  rights  of 
the  depositor  in  so  much  of  the  deposits  as  the  check  maj'  call  for, 
remaining-  in  the  bank  to  the  credit  of  the  depositor  at  the  time  when 
such  draft  is  presented  for  payment. 

Same — Drafts — Presentation— Prior  General  Assignment  by  De- 
positors.— Where  a  depositor  makes  a  draft,  on  a  bank  in  Avhich  he 
has  funds  to  his  credit,  and  afterwards  makes  a  general  assig"nment 
for  the  benefit  of  his  creditors,  and  the  holder  of  such  draft  presents 
the  same  to  the  drawee  for  payment  after  such  assignment  is  made, 
and  payment  is  refused,  he  cannot  maintain  an  action  against  the 
drawee,  and  recover  on  said  draft,  although  at  the  time  the  draft 
was  presented  for  payment  the  drawee  did  not  know  of  the  assign- 
ment, but  learned  of  such  assignment  before  making  payment,  and 
by  reason  of  such  knowledge  refused  paj'ment. 

(Syllabus  by  the  Court.) 

Error  by  defendant  from  Log^an  count}^  probate 
court.     Reversed. 

S.   L.    Overstreet   {Herod   d-    Widmer   and     W.    B. 
Herod,  of  counsel),  for  plaintiff  in  error. 
George  S.  Green,  for  defendant  in  error. 

Tarsney,  J.  On  February  20,  1897,  the  Bank  of 
Mulhall,  b}' its  cashier,  made  its  draft,  payable  to  the 
order  of  J.  R.  Keaton,  for  the  sum  of  S156.05,  directed 
to  the  plaintiff  in  error.  On  March  2, 
1897,  Keaton  indorsed  the  draft  to  the  order 
of  the  defendant  in  error.  At  the  close  of  business  on 
March  11,  1897,  plaintiff  in  error  held  on  deposit 
to  the  credit  of  the  Bank  of  Mulhall  the  sum  of 
S364.69.  At  1  o'clock  on  the  morning  of  March 
12.  1897,  the  Bank  of  Mulhall  made  a  g-eneral  as- 
sigfnment  of  all  its  property,  credits,  and  effects  to 
Georg-e  E.  Billing-sley,  for  the  benefit  of  its  cred- 
itors. Billing-sley  accepted  the  trust  about  7  o'clock 
a.  m.  of  that  day,  and  at  that  hour  took  posses- 
sion of  the  place  of  business  of  the  Bank  of  Mulhall, 
and  all  the  effects  contained  therein,  and  at  8  o'clock 
and  40  minutes  a.  m.  of  the  same  day  filed  the  deed  of 
assig-nment  for  record  in  the  ofiice  of  the  reg^ister  of 
deeds  for  Log-an  county,  and  afterwards,  in  due  time, 
and  as  required  by  law,  filed  an  inventory  of  the  assets 
and  liabilities  of  said  bank.       About  8  o, clock  a.  m.  of 


B  CAS]  CHECKS  185 

Guthrie  Nat.  Bank  v.  Gill 

said  12th  day  of  March,  1897,  plaintiff  in  error  received 
throug-h  the  mail  a  letter  from  the  First  National  Bank 
of  Oklahoma  City  inclosing-  for  collection  the  draft  in 
controversy.  The  Oklahoma  Cit}-  Bank  was  a  cor- 
respondent of  plaintiff  in  error's  bank,  and  at  the  time 
had  an  account  therein.  Between  8:45  and  9  o'clock  of 
the  morning- of  the  said  12th  day  of  March  the  pa^nng- 
teller  of  said  plaintiff  in  error  bank  stamped  said  draft 
with  a  stamp  of  said  bank,  marking-  it  "Paid,"  and 
placed  the  draft  and  the  letter  accompanying-  the  same 
in  a  file  used  for  that  purpose, to  await  future  action, 7>7'^. 
the  making"  of  the  proper  entries  upon  the  books  of  said 
bank,  crediting-  the  account  of  the  Oklahoma  City  Bank 
with  the  amount  of  said  draft,  and  charg-ing-  the  account 
of  the  plaintiff  in  error  bank  with  the  Oklahoma  Cit}' 
Bank  with  the  amount  thereof.  Such  entries  were 
never  made,  for  the  reason  that,  immediately  after  said 
draft  was  so  stamped,  plaintiff  in  error  received  atele- 
g-ram  from  said  assig-nee  notifying-  it  that  he  had  been 
made  assig-nee  of  the  Bank  of  Mulhall,  and  not  to  pa}- 
any  drafts  or  orders  drawn  by  said  bank.  Upon  the 
receipt  of  this  teleg-ram  the  president  of  the  plaintiff  in 
error  bank  immediately  directed  said  paying"  teller  to 
erase  the  stamp  that  had  been  placed  upon  said  draft, 
and  to  refuse  the  payment  thereof.  Such  erasure  was 
made,  and  the  draft  placed  in  the  hands  of  a  notary  for 
protest,  and  the  same  was  protested  for  nonpayment. 
The  paying-  teller  testifies  that,  if  payment  had  not 
been  stopped,  in  the  course  of  business  that  would  have 
been  pursued  to  have  completed  the  payment,  at  3  or  4 
o'clock  of  the  afternoon  of  that  day  entries  would  have 
been  made  on  the  journal  of  the  bank  charg-ing-  the 
amount  of  the  draft  to  the  Bank  of  Mulhall,  crediting- 
the  amount  thereof  to  the  balance  due  the  Oklahoma 
City  Bank,  and  such  entries  would  have  to  be  carried 
into  other  books,  ciz.  a  ledg-er  and  the  bank's  g-eneral 
balance  ledg-er,  and  that,  when  such  entries  would  have 
been  made,  notice  would  have  been  sent  to  the  Oklahoma 
City  Bank;  that  none  of  these  entries  were  made  upon 
the  books,  and  no  notice  was  given. 


186  CHECKS  [vol  I 

Guthrie  Nat.  Bank  v.  Gill 

The  defendant  in  error  contends  that  the  g'ivino'  of  a 
check  or  the  issuance  of  a  draft  is  an  equitable  assigfn- 

ment  of  enough  of  the  funds  in  the  hands 
Dram-Rfriisiii to  of  the  drawee  at  the  time  the  check  is  g'iveu 
Bank.  or  the  draft  issued  to  satisfy  such  check  or 

draft,  but  concedes  that  upon  this  point  the 
authorities  are  in  conflict,  and  further  concedes  that 
this  court  mio-ht  feel  oblig-ed  to  follow  the  rule  of  the 
supreme  court  of  the  United  States  upon'  the  question, 
and  that  upon  this  point  the  recent  case  of  Bank  i'. 
Yardley,  165  U.  S.  634,  17  Sup.  Ct.  439,  and  the  pre- 
vious decisions  of  said  court  thereon  (Bank  v.  Millard„ 
10  Wall.  152;  Bank  r.  Whitman,  94  U.  S.  343)  are  in 
conflict  with  defendant  in  error's  contention.  In  these 
cases  it  is  held  that,  asbetw^een  the  holder  and  the  bank 
upon  which  such  check  or  draft  is  drawn,  it  is  settled 
that,  unless  the  check  or  draft  be  accepted  by  the  bank, 
an  action  cannot  be  maintained  by  the  holder  ag-ainst  the 
bank.  On  the  other  hand,  it  is  held  by  a  very  respect- 
able line  of    authorities  that  a  check  drawn    upon  an 

existing-  fund  in  a  bank  is  an  absolute  trans- 
ofTiTefkio'ilfer!*    fcr  or  appropriation    to    the   holder  of    the 

amount  of  said  funds  desig-nated  in  the  check 
then  in  the  hands  of  the  drawee;  that  a  bank  receives 
deposits  on  the  expressed  or  implied  promise  to  pay 
them  out  upon  the  checks  of  the  depositors,  and  that 
the  depositor  may  draw  his  check  for  a  small  or  larg-e 
amount,  payable  to  his  creditors  or  those  to  whom  he 
desires  to  pay  money,  and  the  bank,  by  receivingr  the 
deposit,  impliedly  promises  to  pay  such  checks,  by 
whomsoever  presented;  and  that  the  holder  of  such 
check  may  sue  the  bank  refusing*  payment,  thoug-h 
there  be  no  acceptance.  It  is  not  necessary  to  a  decision 
in  this  case  that  we  should  determine  whether  this  court 
is  absolutely  required  to  follow  a  rule  of  decision  of 
the  supreme  court  of  the  United  States  in  matters  other 
than  those  involving-  federal  questions,  or,  should  we 
hold  the  neg-ative  of  that  proposition,  to  examine  and 
determine  between  the  conflicting-  authorities  presen- 
ted; for,  as  we  understand  those  authorities,  the  ques-- 


B  CAS]  CHECKS  187 

Guthrie  Nat.  Bank  v.  Gill 

tion  in  conflict  does  notarise  upon  the  facts  of  this  case. 
As  we  interpret  the  authorities  that  are  in  conflict 
with  the  rule  of  the  supreme  court  of  the  United  States 
concerning"  the  necessity  for  an  acceptance  by  the 
drawee  to  authorize  an  action  against  him  by  the  hold- 
er, they  do  not  ^o  to  the  extent  of  holding-  that  the 
mere  making-  and  delivery  of  the  draft  to  the  payee 
g"ives  a  rigfht  of  action  against  the  drawee  by  the  hold- 
er, but  that  to  create  such  rig-ht  of  action  such  draft 
must  be  presented  for  payment,  and  that  there  must  be 
funds  in  the  hands  of  the  drawee  at  the  time  to  the  credit 
of  the  drawer.  In  this  case  no  question  arises  as  to 
time  when  the  draft  w^as  presented,  nor  is  there  any 
contest  between  the  defendant  in  error  and  other  check 
holders.  The  contest  is  between  the  holder  and  the 
drawee,  and  the  question  is,  had  the  bank  sufficient 
funds  of  the  drawer  when  the  draft  was  presented? 
If  it  had,  it  should  have  paid  the  draft,  failing-  in 
which  the  action  was  properly  brought.  On  the  con- 
trary, if  it  had  no  funds,  or  not  sufficient  funds,  of  the 
drawer,  when  the  draft  was  presented,  to  pay  the  same, 
it  cannot  be  held  liable  in  this  action.  The  real 
question  therefore  is,  were  there  funds  in  the  hands 
of  the  plaintiff  in  error  belonging  to  the  Bank  of 
Mulhall  which  plaintiff  in  error  was  author-     ,       „  „ 

^  .   ^  .  .,  Same- Drafts— 

ized    and    obligated    to   appropriate   to  the     Presentation- 
payment     of     this    draft    at    the    time     it     Assi^nnient by 
was  presented  for  payment?     As    we  view     '*''?«""'<"■• 
this  case,  there  is  no  question  of  acceptance  or    pay- 
ment   in  it.    Plaintiff    in    error    cannot    be    held    as 
an  acceptor,    there   being  no   evidence    in   the  record 
to     establish    any    such     relation.     Whatever    might 
be    the    effect    of  the  action    of    the    paying    teller    in 
stamping  the  draft  as  tending  to  establish    an  actual 
payment,    it  had    no  tendency   to  establish  an  accept- 
ance.    Acceptance    and  payment   are  essentiall}^   and 
inherently  different.     The    one    is    an  agreement    or 
promise   to  do    something.     The    other    is    the  actual 
doing    of  that  which    had  been    previously  promised. 
There  can  -  be    no   doubt    that  the  act  of   the  paying 


188  CHECKS  [vol  I 

Guthrie  Nat.  Bank  v.  Gill 

teller  was  an  act  done  in  contemplation  of  paj^ment, 
but  there  was  no  completed  payment.  The  pay- 
ment would  not  be  complete  until  the  accounts  of  the 
several  parties  interested  had  been  adjusted  on  the  books 
of  the  plaintiff  in  error,  and  notice  sent  to  the  party 
credited  by  such  payment.  Until  the  transaction  was 
thus  completed,  it  was  inchoate,  and  plaintiff  in  error 
mig-ht,  for  lawful  cause,  suspend  or  refuse  to  complete 
such  payment.  The  word  "Paid"  stamped  upon  the 
draft  does  not  indicate  a  promise.  It  implies  none  of 
the  elements  of  an  agfreement,  and,  if  it  did,  it  would 
yet  be  incomplete  to  make  an  acceptance.  An  accept- 
ance is  not  complete  until  the  instrumetrt  has  been  re- 
turned to  the  holder.  So  long-  as  the  bill  remains  in  the 
hands  of  the  drawee,  althoug-h  he  may  have  written  an 
acceptance  upon  it,  the  acceptance  is  not  fully  binding-; 
and  he  may,  at  least  while  he  has  not  communicated 
the  fact  of  his  acceptance  to  the  holder,  obliterate  his 
acceptance,  and  redeliver  the  bill,  without  incurring 
au}'  liability  as  acceptor.  4  Am.  &  Kng-.  Enc.  Law 
{2d  Ed.)  212.  We  do  not  deny  the  doctrine  that  the 
drawee  of  a  bill  of  exchange,  although  not  expressly 
accepting  it,  may  so  deal  with  it  that  the  law  will  infer 
an  acceptance  on  his  part,  but  the  g-eneral  rule  relative 
to  such  an  acceptance  is  that  only  such  languag-e  or 
conduct  on  the  part  of  the  drawee  as  justifies  the  holder 
in  believing-  that  the  drawee  consents  to  pay  the  bill 
wnll  operate  to  bind  such  person  as  an  acceptor.  4  Am. 
&  Eng-.  Enc.  Law  (2d  Ed.)  219,  and  cases  cited.  But 
this  doctrine  of  implied  or  constructive  acceptance  can- 
not apply  in  this  case,  because  the  holder  could  not 
have  been  justified  in  concluding  that  the  drawee  intend- 
ed to  bind  itself  by  its  act  of  stamping-  the  draft,  for 
the  reason  that  the  holder  had  no  knowledg-e  of  such 
act  until  the  draft  was  returned  protested.  The  only 
theory,  in  our  view,  upon  which,  under  either  line  of 
such  conflicting  authorities,  defendant  in  error's  right 
to  a  recoverv  can  be  urged,  is  independent  of  any  action 
of  the  paying-  teller  of  the  bank,  viz.  that  when  the 
draft  reached  the  bank  for  collection  there  was  a  fund- 


B  CAS]  CHECKS  189 

Guthrie  Nat.  Bank  v.  Gill 

In  the  bank,belong-ing-  to  the  drawer,  with  which  to  pay 
the  draft;  that  the  making-  of  the  draft  operated,  upon 
its  presentation  for  payment,  as  an  equitable  assio-n- 
ment  of  so  much  of  the  funds  of  the  maker  then  in  the 
hands  of  the  drawee  as  would  pay  such  draft.  But 
the  facts  of  this  case  do  not  support  this  theory,  as  at 
the  time  the  draft  was  presented  there  were  no  funds 
in  the  bank  to  the  credit  of  the  maker  of  the  draft;  such 
funds  and  credit  having  been  previously  assig-ned  in 
trust  for  the  benefit  of  the  creditors  of  the  maker  of  the 
draft. 

We  do  not  think  it  material  that  plaintiff  in  error  did 
not  know  of  the  assig^nment  when  the  draft  reached  the 
bank  for  collection.  Such  knowledg-e  mig-ht  be  mate- 
rial if  the  draft  had  been  paid,  and  this  were  an  action 
by  the  assig-nee  to  recover  the  fund,  but  as  between  the 
holder  of  the  draft  and  the  bank  it  is  not  material. 
The  defendant  in  error  cannot  recover  upon  the 
equities  which  plaintiff  in  error  mig-ht  have  in  an  ac- 
tion against  it  by  the  assig-nee  had  the  draft  been  paid, 
but  must  recover,  if  atall,  upon  the  theory  that  the  funds 
upon  which  it  was  drawn  remained  the  property  and 
funds  of  the  drawer  until  the  draft  was  presented  for 
payment,  and  this  involves  the  theory  that  the  assig-n- 
ment  did  not  operate  to  devest  the  assig-nor  of  ownership 
and  control  of  the  funds  on  which  the  draft  was  drawn 
until  the  drawee  had  knowledg-e  of  such  assig-nment. 
This  theory  cannot  be  sustained.  The  assig-nment, 
when  it  was  executed,  and  the  trust  accepted  by  the 
assig-nee,  operated  eo  iiistajiii  to  devest  the  assig-nor  of 
ownership  and  control  of  the  propert}^  assig-ned,  and 
vest  such  ownership  and  control  in  the  assig-nee  for  the 
benefit  of  creditors  g-enerally,  and  thereafter  the  holder 
of  a  draft  unpresented  for  payment  is  not  entitled  to 
payment  in  full  out  of  any  fund  upon  which  it  was 
drawn,  but  must  prorate  with  the  other  creditors. 
We  are  of  the  opinion  that  the  court  below  erred  in 
sustaining-  the  demurrer  to  the  second  parag-raph  of  the 
answer  of  the  defendant,  and  in  overruling-  the  motion 
for  a  new  trial;  and  the  judg-ment  herein  is  reversed , 


190  CHECKS  [vol  I 

Notes 

and  the  cause  dismissed.    All  the  judg"es  concur,  except 
Keaton,   J.,  not  sitting-. 


NOTES. 

REFUSAL  TO  HONOR  CHECK— LIABILITY  OF  BANK  TO  HOLDER. 

The  question  as  to  whether  the  holder  of  an  uncertified  check, 
before  acceptance  or  some  equivalent  act,  has  a  right  of  action 
against  a  bank  improperly  refusing  to  honor  the  same  is  unsettled, 
the  weight  of  authority  in  the  United  States  and  England  denying 
the  liability,  and  the  leading  text  writers  and  some  of  the  states  as- 
serting it. 

(I)  LiabilityDenied. — The  grounds  assigned  forlhe  denial  of  such 
liability  are:  (a)  that  prior  to  acceptance  there  is  a  want  of  privity' 
of  conti-act  between  the  bank  and  the  holder  ;  (b)  that  an  ordinary 
check  in  usual  form  is  simply  an  order,  subject  to  be  countermanded 
or  revoked  at  any  time  before  payment  and  does  not  operate  as  an 
assignment  legal  or  equitable  or  create  alien  ;  (c)  that  as  the  depos- 
itor could  also  sue  thereon,  the  bank  would  be  subject  two  actions 
on  one  promise  if  right  of  action  were  given  the  holder  also  ;  (d)  that 
it  should  not  be  subjected  to  distinct  demands  by  several  persons, 
thereby  causing  it  great  embarrassment  by  compelling  it  to  settle 
conflicting  demands  of  check  holders. 

The  following  authorities  advance  the  foregoing  grounds  : 

(a)  Want  of  Privity. — Em^latid. — Schroeder  v.  Central  Bank,  34  L. 
T.  N.  S.  736  ;  Warwick  v.  Rogers,  5  M.  &  G.  374,  44  E.  C.  E.  374. 

Ufiited  States.— V,?,n^  of  Republic  v.  Millard,  10  Wall.  (U.  S.)  152  ; 
Washington  First  Nat.  Bank  v.  Whitman,  94  U.  S.  343  ;  Rosenthal 
V.  Mastin  Bank,  17  Blatchf.  (U.  S.)  318;  Laclede  Bank  v.  Schuler, 
120  U.  S.  511  ;  St.  Louis,  etc.,  R.  Co.  v.  Johnston,  133  U.  S.  566. 

^/adrtw^a.— National  Commercial  Bank  v.  Miller,  77  Ala.  168,  54 
Am.  Rep.  50. 

Arizona. — Satterwhite  v.  Melczer,  (Arizona  1890)  24  Pac.  Rep.  184. 

Colorado. — State  Nat.  Bank  v.  Boettcher,  5  Colo.  185,  40  Am.  Rep. 
142. 

Indiana. — National  Bank  v.  Lafayette  Second  Nat.  Bank,  69  Ind. 
479,  35  Am.  Rep.  236  ;  Griffin  v.  Kertip,  46  Ind.  172. 

Massachusetts. — Bullard  ?'.  Randall,  1  Gray  (Mass.)  605,  61  Am. 
Dec.  433;  Dana  v.  Boston  Third  Nat.  Bank,  13  Allen  (Mass.)  448,  90 
Am.  Dec.  216  ;  Carr  z>.  National  Security  Bank,  107  Mass.  45,  9  Am. 
Rep,  6. 

Michigan. — Grammel  v.  Carmer,  55  Mich.  201,  54  Am.  Rep.  363 
(Sherwood,  J.,  dissentittg);  Moore  v.  Davis,  57  Mich.  251  ;  Brennan 
V.  Merchants',  etc.,  Nat.  Bank,  62  Mich.  343  ;  Dickinson  v.  Coats, 
18  Cent.  L.  J.  71. 

New  Jersey. — Creveling  v.  Bloomsbury  Nat.  Bank,  46  N.  J.  L.  255, 
50  Am.  Rep.  417. 

New  Vork.—Ydin  Alen  v.  American  Nat.  Bank,  52  N.  Y.  4  ;  Tyler 
V.  Gould,  48  N.  Y.  682;  Duncan  v.  Berlin,  60  N.  Y.  151  ;  Atty.  Gen. 
V.  Continental  L.  Ins.  Co.,  71  N.  Y.  325,  27  Am.  Rep.  55  ;  Union 
Mills  First  Nat.  Bank  v.  Clarke,  134  N.  Y.  368  ;  Viets  v.  Union  Nat. 
Bank,  101  N.  Y.  572,  54  Am.  Rep.  743. 


B  CAS]  CHECKS  '  191 

Notes 

North  Carolina.— ^B.?iV7&S:  v.  Blackwell,  107  N.  Car.  196,  22  Am.  St. 
Rep.  870. 

Ohio.— Covert  v.  Rhodes,  48  Ohio  St.  66  ;  Metropolitan  Bank  v. 
Cincinnati,  etc.,  R.  Co.,  27  Ohio  L.  J.  105. 

Pe)tnsylvania.—'^?iy\or  v.  Bushong,  100  Pa.  St.  23,  45  Am.  Rep.  3o3  ; 
Northumberland  First  Nat.  Bank  ?'.  McMichael,  106  Pa.  St.  460. 

Tennessee.— ^Idinters,'  Bank  v.  Keesee,  7Heisk.  (Tenn.)  200  ;  Pickle 
V.  Muse,  88  Tenn.  380,  17  Am.  St.  Rep.  900  ;  Imboden  v.  Perrie,  13 
Lea  (Tenn.)  504. 

Virginia.— 'P-arceW  v.  Allemong,  22  Gratt.  (Va.)  742. 
Leading  Case.— The  case  of  Bank  of  Republic  v.  Millard,  10  Wall. 
(U.  S.)  152,  is  the  leading  case  on  the  subject  in  this  country.    _Mr. 
Justice  Davis  in  delivering  the  opinion  of  the  court,  said  ;  "  It  is  no 
longer  an  open-question  in  this  court,  since  the  decision  in  the  cases 
of  Marine  Bank  v.  Fulton  Bank,  2  Wall.  (U.  S.)  252,  and  of  Thomp- 
son V.  Riggs,  5  Wall.  (U.  S.)  663,  that  the  relation  of  banker  and  cus- 
tomer, in    their  pecuniary  dealings,  is    that  of  debtor  and    creditor. 
It  is  an  important  part  of  the  business  of  banking  to  receive  deposits, 
but   when  they   are   received,    unless    there  are   stipulations   to   the 
contrary,  theybelong  to  the  bank,  become  part  of  its  general  funds, 
and  can  be  loaned  by  it  as  other  moneys.     The  banker  is  accountable 
for   the   deposits  which  he  receives   as  a   debtor,    and   he  agrees   to 
discharge  these  debts  by  honoring  the  checks   which  the  depositors 
shall  from  time    to  time    draw  on    him.     The    contract  between    the 
parties  is  purely  a  legal   one,  and  has   nothing  of   the  nature   of  a 
trust  in    it.     *  *  *  As   checks  on    bankers    are  in  constant   use,  and 
have  been  adopted  by  the  commercial  world  generally  as  a  substitute 
for  other  modes  of  payment,  it  is  important,  for  the  security  of  all 
parties  concerned,  that  there  should  be  no  mistake  about  the  status 
which  the  holder  of  a  check  sustains  towards  thebank  on  which  it  is 
drawn.     It  is  very  clear   that  he  can   sue  the   drawer  if   payment  is 
refused,    but   can    he    also,  in  such  a  state   of   case,  sue   the   bank  ? 
*  *  *  On  principle,  there  can  be  no  foundation  for  an   action  on  the 
part  of  the  holder,  unless  there  is  a  privity  of  contract  between  him 
and  the  bank.     How  can  there  be  such  a  privity  when  the  bank  owes 
no   duty  and  is    under   no   obligation  to  the    holder  ?       The    holder 
takes   the    check   on   the   credit   of   the  drawer    in    the  belief    that 
he   has   funds   to  meet   it,  but  in   no  sense  can  the  bank  be  said  to 
be  connected  with  the  transaction.     If  it  were  true  that  there  was  a 
privity  of  contract  between  the   banker  and   holder  when  the  check 
was  given,  the  bank  would   be  obliged    to   pay   the  check    although 
the   drawer,    before   it  was   presented,   had  countermanded   it   and 
although   other    checks,    drawn    after    it    was     issued,    but    before 
payment   of    it   was   demanded,    had   exhausted    the    funds   of   the 
depositor.      If   such    a   result   should   follow  the  giving  of  checks, 
it   is   easy    to   see  that    bankers   would   be   compelled   to   abandon 
altogether   the    business    of    keeping   deposit   accounts    for     their 
customers.     If,    then,    the   bank   did  not   contract  with   the  holder 
of  the  check  to  pay  it  at  the    time  it  was  given,  how  can  it  be  said 
that  it  owes  any  duty  to  the   holder  until  the  check  is  presented  and 
accepted  ?     "  *  *  It  may  be,  if  it  could  be  shown  that  the  bank  had 
charged  the  check  on  its  books  against  the  drawer,  and  settled  with 
him  on  that  basis,  that  the  plaintiff  could  recover  on  the  count  for 
money  had  and  received,  on  the  ground  that  the  rule  ex  crquo  et  bo7io 
would  be  applicable,  as  the  bank,   having  assented  to  the  order  and 


192  CHECKS  [vol  I 

Notes 

communicated  its  assent  to  the  paymaster,  would  be  considered  as 
holding  the  money  thus  appropriated  for  the  plaintiff's  use,  and 
therefore  under  an  implied  promise  to  him  to  pa^'  it  on  demand." 

The  same  view  is  adopted  in  Atty.  Gen.  v.  Continental  L.  Ins.  Co., 
71  N.  Y.  325,  27  Am.  Rep.  55.  The  court  said  :  "  Banks  are  debtors 
to  their  customers  for  the  amount  of  deposits.  A  check  is  a  request 
of  the  customer  to  pay  the  whole  or  a  portion  of  such  indebtedness 
to  the  bearer  or  to  the  order  of  the  payee.  Until  presented  and  ac- 
cepted, it  is  inchoate  ;  it  vests  no  title  or  interest,  legal  or  equitable, 
in  the  pa^'ee  to  the  fund.  Before  acceptance,  the  drawer  may  with- 
draw his  deposit  ;  the  bank  owes  no  duty  to  the  holder  of  a  check 
until  it  is  presented  for  paj'ment.  Knowledge  that  checks  have  been 
drawn  does  not  render  it  oblig^atory  upon  the  bank  to  retain  the 
deposit  to  meet  them.  These  rules  are  indispeosable  to  the  safe 
transaction  of  commercial  business." 

The  New  York  Negotiable  Instruments  Law,  1897,  art.  xvii.,  ;^  325, 
declares  :  "  A  check  of  itself  does  not  operate  as  an  assignment  of 
an3'  part  of  the  funds  to  the  credit  of  the  drawer  with  the  bank,  and 
the  bank  is  not  liable  to  the  holder  unless  and  until  it  accepts  or 
certifies  the  check." 

(b)  No  Assignment. — England. — Schroeder  v.  Central  Bank,  34  L. 
T.  N.  S.  736 ;  Hopkinson  v.  Forster,  L.  R.  19  Eq.  74. 

United  States.— ^o\.\r\.\\  Street  Bank  v.  Yardley,  165  U.  S.  634  ;  Bank 
of  Republic  v.  Millard,  10  .Wall.  (U.  S.)  152;  Florence  Min.  Co.  v. 
Brown,  124  U.  S.  385  ;  Bull  v.  Kasson  Bank,  123  U.  S.  105  ;  Essex 
County  Nat.  Bank  v.  Montreal  Bank,  7  Biss.  (U.  S.)  195  ;  Christmas 
V.  Rus'sell,  14  Wall.  (U.  S.)  84;  Mandeville  v.  Welch,  5  Wheat.  (U.  S.) 
286;  Rosenthal  v.  Mastin  Bank,  17  Blatchf.  (U.  S.)  318. 

Alabama. — National  Commercial  Bank  v.  Miller,  77  Ala.  168,  54 
Am.  Rep.  50. 

Arizona. — Satterwhite  v.  Melczer,  (Arizona  1890)  24  Pac.  Rep.  184. 

Itidiana. — Harrison  v.  Wright,  100  Ind.  515,  50  Am.  Rep.  805  ;  Of- 
futt  V.  Rucker,  2  Ind.  App.  3o0. 

Louisiana. — Case  v.  Henderson,  23  La.  Ann.  49,  8  Am.  Rep.  590. 

Ma)yland. — Moses  v.  Franklin  Bank,  34  Md.  574. 

Massachusetts. — Bullard  v.  Randall,  1  Gray  (Mass.)  605,  61  Am. 
Dec.  433  ;  Dana  v.  Boston  Third  Nat.  Bank,  13  Allen  (Mass.)  445,  90 
Am.  Dec.  216. 

Michigan. — Grammel  v.  Carmer,  55  Mich.  201,  54  Am.  Rep.  363 
(Sherwood,  J.,  dissenting);  Moore  v.  Davis,  57  Mich.  255. 

Missouri. — Chase  v.  Alexander,  6  Mo.  App.  510  ;  Merchants'  Nat. 
Bank  v.  Coates,  79  Mo.  168  ;  Dickinson  v.  Coates,  79  Mo.  250,  49  Am. 
Rep.  228  ;  Coates  v.  Doran,  83  Mo.  337.  See  Dowell  v.  Vandalia 
Banking  Assoc,  62  Mo.  App.  482;  Bank  of  Commerce!'.  Bogy,  44 
Mo.  13.     See  also  infra,  this  note. 

New  Jersey.— Cr&\'Q\ing  v.  Bloomsbury  Nat.  Bank,  46  N.  J.  L.  255, 
50  Am.  Rep.  417. 

Neiu  }or/t.— Chapman  v.  White,  6  N.  Y.  412,  57  Am.  Dec.  464  ; 
Dykers  v.  Leather  Manufacturers'  Bank,  11  Paige  (N.  Y.)  612  ; 
^i:tna  Nat.  Bank  v.  New  York  Fourth  Nat.  Bank,  46  N.  Y.  82, 
7  Am.  Rep.  314  ;  Duncan  v.  Berlin,  60  N.  Y.  151 ;  Atty.  Gen.  v.  Con- 
tinental L.  Ins.  Co.,  71  N.  Y.  325,  27  Am.  Rep.  55  ;  Rislev  i'.  Phenix 
Bank,  83  N.  Y.  324,  38  Am.  Rep.  421  ;  Viets  v.  Union  Nat'.  Bank,  101 
N.  Y.  572,  54  Am.  Rep.  743;  Lynch  v.  Jersev  Citv  First  Nat.  Bank, 
107  N.  Y.  182,  1  Am.  St.  Rep.  803;  Union  Mills  First  Nat.  Bank  v, 
Clark,  134  N.  Y.  368. 


B  CAS]  CHECKS  193 

Notes 

Ohio.— Cow&rt  v.  Rhodes,  48  Ohio  St.  66. 

Ptvinsyl-cania.—l^oyd  v.  McCaffrey,  46  Pa.  St.  410. 

Tennessee. — Planters'  Bank  v.  Keesee,  7  Heisk.  (Tenn.)  200  ;  Im- 
boden  v.  Perrie,  13  Lea   (Tenn.)  504. 

The  question  whether  or  not  a  check  operates  as  an  equitable  as- 
sig-nment  is  succinctly  and  clearly  answered  by  Mr.  Justice  Field 
in  the  case  of  Florence  Min.  Co.  v.  Brown,  124  U.  S.  385.  Speaking- 
for  the  coixrt  he  said  :  "  An  order  to  paj'  a  particular  sum  out  of  a 
special  fund  cannot  be  treated  as  an  equitable  assig-nment  pro  tanto 
unless  accompanied  with  such  a  relinquishment  of  control  over  the 
sum  desig-nated  that  the  fund  holder  can  safely  pay  it,  and  be  com- 
pelled to  do  so,  thoug-h  forbidden  b}'  the  drawer.  A  g-eneral  deposit 
in  a  bank  is  so  much  money  to  the  depositor's  credit ;  it  is  a  debt  to 
him  by  the  bank,  paj^able  on  deinand  to  his  order,  not  propertj'  capa- 
ble of  identification  and  specific  appropriation.  A  check  upon  the 
bank  in  t'ne  usual  form,  not  accepted  or  certified  by  its  cashier  to  be 
good,  does  not  constitute  a  transfer  of  any  money  to  the  credit  of 
the  holder  ;  it  is  simply  an  order  which  ma3^  be  countermanded  and 
payment  forbidden  by  the  drawer  at  any  time  before  it  is  actually 
cashed.  It  ci-eates  no  lien  on  the  monej'  which  the  holder  can  en- 
force against  the  bank.  It  does  not  of  itself  operate  as  an  equitable 
assigmment." 

In  the  case  of  Lunt  v.  Bank  of  North  America,  49  Barb.  (N.  Y.) 
221,  the  court  held  that  checks  drawn  in  the  ordinary  g-eneral  form,, 
not  describing  any  particular  fund  or  using  any  words  of  transfer 
of  the  whole  or  any  part  of  the  account  standing  to  the  credit  of  the 
drawer,  but  containing  only  the  usual  request,  are  of  the  same  legal 
effect  as  inland  bills  of  exchange,  and  do  not  amount  to  an  assign- 
ment of  the  funds  of  the  drawer  before  acceptance  ;  that  until  then 
they  are  always  revocable  b\'  the  drawer.  In  delivering  the  opinion 
the  court  said  :  "  How  can  it  be  said  that  these  checks  lield  by  the 
Bank  of  North  America  are  an  assignment  of  the  funds  of  the 
drawer,  any  more  than  the  subsequent  ones  drawn  before  the  execu- 
tion of  the  assignment  to  the  plaintiffs  ?"  To  the  same  effect  are 
Chapman  v.  "White,  6  N.  Y.,  412,  57  Am.  Dec.  464  ;  Harrison  v.  Wright, 
100  Ind.  515.  50  Am.  Rep.  805  ;  Dana  v.  Boston  Third  Nat.  Bank,  13 
Allen  (Mass.)  445,  90  Am.  Dec.  216. 

Where  a  depositor,  upon  discovering  that  he  had  drawn  checks 
exceeding  the  amount  of  his  deposit  bj-  several  thousand  dollars, 
notified  the  bank  not  to  pay  any  checks  that  might  be  afterwards 
presented,  and,  finding  that  he  could  not  make  up  the  deficiency 
during  banking  hours,  finally  withdrew  his  deposit  from  the  bank 
for  the  purpose  of  distributing  it  ratably  among  his  check  holders,. 
it  was  held  that  the  holder  of  a  check  who  had  presented  it  and  de- 
manded payment  after  notice  to  the  bank  not  to  pay,  but  before  the- 
deposit  had  been  withdrawn,  was  not  entitled  to  recover  the  amount 
thereof  against  the  bank  ;  that  the  drawing  of  a  check  upon  a  bank 
was  not  a  specific  appropriation  of  the  funds  of  the  borrower  to  the 
payment  of  that  particular  debt,  in  preference  to  the  holders  of 
checks  subsequently  drawn.  Dj'kers  v.  Leather  Manufacturers' 
Bank,  11  Paige  (N.  Y.)  612. 

In  order  to  constitute  an  equitable  assignment  the  check  must  be 
upon  a  particular,  specified  fund.  And  a  check  in  the  usual  form,, 
not  describing  any  particular  fund  or  using  any  words  of  transfer,. 

B  CAS — 13 


194  CHECKS  [vol  1 

Notes 

does  not  operate  as  an  assignment,  equitable  or  otherwise.  Attj-. 
Gen.  V.  Continental  L.  Ins.  Co.,  71  N.  Y.  325,  27  Am.  Rep.  55. 

In  Missouri. — In  the  case  of  Dickinson  v.  Coates,  79  Mo.  250,  49 
Am.  Rep.  228,  this  question  was  finalU'  settled  in  Missouri  against 
the  check  holder's  right  to  sue  the  bank,  the  reason  given  being  that 
checks  ordinarily-  do  not  constitute  an  assignment,  legal  or  equitable , 
of  the  deposit.  Prior  to  this  decision  a  contrary  view  had  been 
taken.  McGrade  v.  German  Sav.  Inst.,  4  Mo.  App.  330  ;  Zelle  v. 
German  Sav.  Inst.,  4  Mo.  App.  401  ;  State  Sav.  Assoc,  v.  Boatmen's 
Sav.  Bank,  11  Mo.  App.  292  ;  Senter  v.  Continental  Bank,  7  Mo. 
App.  532.  The  case  of  Dickinson  v.  Coates,  72  Mo.  250,  49  Am.  Rep. 
228,  has  been  approved  ^nd  followed  in  Coates  v.  Doran,  83  Mo.  337, 
and  the  law  may  be  said  to  be  settled  in  this  state. 

In  the  leading  English  case  on  this  subject,  Sir  G.  Jesskl,  Master 
OF  THE  Rolls,  said:  "A  check  isclearU- not  an  assignment  of  money 
in  the  hands  of  a  banker  ;  it  is  a  bill  of  exchange  payable  at  a 
banker's.  The  banker  is  bound  by  his  contract  with  his  customer 
to  honor  the  check  when  he  has  sufficient  assets  in  his  hands  ;  if  he 
does  not  fulfil  his  contract  he  is  liable  to  an  action  by  the  drawer. 
"*  ""  *  I  do  not  understand  the  expressions  attributed  to  Mr.  Justice 
Byles  in  the  case  of  Keene  v.  Beard,  8  C.  B.  N.  S.  372,  98  E.  C  L. 
372  ;  but  I  am  quite  sure  that  learned  judge  never  meant  to  \a.y 
down  that  a  banker  who  dishonors  a  check  is  liable  to  a  suit  in 
equitv  b3'  the  holder."  Hopkinson  v.  Forster,  L.  R.  19  Eq.  74. 

(c)  Double  Action.— In  Bank  of  Republic  v.  Millard,  10  Wall.  (U.  S.) 
152,  Mr.  Justice  Davis  said  :  "It  is  conceded  that  the  depositor  can 
bring  assumpsit  for  the  breach  of  the  contract  to  honor  his  checks, 
and  if  the  holder  has  a  similar  right,  then  the  anomaly  is  presented 
of  a  right  of  action  upon  one  promise,  for  the  same  thing,  existing 
in  two  distinct  persons,  at  the  same  time."  See  also  Rosenthal  v. 
Mastin  Bank,  17  Blatchf.  (U.  S.)  322. 

But  as  to  this  contention,  Mr.  Daniel,  in  his  work  on  Negotiable 
Instruments,  vol.  2  (4th  ed.),  ij  1639  saj's  :  "But  it  is  again  objected 
that  if  the  holder  could  sue  the  bank  for  the  amount,  it  would  be 
liable  to  a  suit  from  two  different  persons  for  the  same  thing,  as  the 
depositor  could  sue  it  also.  But  while  the  depositor  could  sue  the 
bank  for  the  wrong  done  in  refusing  to  pay  his  check,  and  recover 
any  consequential  damages,  he  could  not,  we  should  say,  sue  it  for 
the  amount  of  the  check  after  its  presentment.  For  then  the  as- 
signment is  completed  as  against  the  bank — its  assent  has  been  ob- 
tained by  its  reception  of  the  deposit,  the  right  of  the  depositor 
parted  with,  and  of  the  holder  perfected.  And  while  both  depositor 
and  holder  could  sue  the  bank,  their  causes  of  action  would  be  as 
distinct  as  a  tort  is  from  a  contract." 

(d)  Splitting  Cause  of  Action. — National  Bank  v.  Eliot  Bank,  5  Am. 
Iv.  Reg.  711  ;  Harrison  v.  Wright,  100  Ind.  539,  50  Am.  Rep.  805  ; 
Dj^kers  v.  Leather  Manufacturers'  Bank,  11  Paige  (N.  Y.)  612; 
^tna  Nat.  Bank  v.  New  York  Fourth  Nat.  Bank,  46  N.  Y.  90,  7  Am. 
Rep.  314. 

In  Mandeville  v.  Welch,  5  Wheat.  (U.  S.),  286,  Judge  Story  said  : 
■"A  creditor  shall  not  be  permitted  to  split  up  a  single  cause  of 
action  into  many  actions,  without  the  assent  of  his  debtor,  since  it 
may  subject  him  to  manj'  embarrassments  and  responsibilities  not 
contemplated  in  his  original  contract.  He  has  a  right  to  stand 
upon  the  singleness  of   his   original   contract,    and  to   decline   any 


B  CAS]  CHECKS  195 

Notes 

leg'al   or   equitable   assignments   by   which   it  may    be  broken    into 
fragments." 

Check  for  Amount  of  Deposit. — It  has  been  held,  however,  that  if 
a  check  be  drawn  for  the  exact  amount  on  deposit  it  will  operate  as 
an  equitable  assignment  of  the  debt  due  from  the  bank  to  the  drawer, 
and  give  the  holder  a  right  of  action  against  the  bank  improperly 
refusing  to  honor  the  same.  Covert  v.  Rhodes,  48  Ohio  St.  73;  Hawes  v. 
Blackwell,  107  N.  Car.  201,  22  Am.  St.  Rep.  870.  Also,  by  implica- 
tion,   Carr  v.  National  Security  Bank,  107  Mass.  49,  9  Am.  Rep.  6. 

In  Kingman  v.  Perkins,  105  Mass.  Ill,  an  order  on  a  savings  bank 
for  the  whole  sum  due,  given  upon  sufficient  consideration,  was  held 
to  constitute  an  assignment  of  the  amount  in  the  hands  of  the  sav- 
ings bank. 

Contra.— \\\  Ivunt  v.  Bank  of  North  America,  49  Barb.  (N.  Y.)  221, 
it  was  held  that  checks  drawn  in  the  ordinary-  general  form,  not  de- 
scribing anj-  particular  fund,  or  using  any  words  of  transfer  of  the 
whole  or  any  part  of  the  account  standing  to  the  credit  of  the  drawer 
in  the  bank  upon  which  they  are  drawn,  but  containing  only  the 
usual  request  directed  to  the  bank,  to  pay  to  the  order  of  the  paj^ee 
named  a  certain  sum  of  money,  are  of  the  same  legal  effect  as  inland 
bills  of  exchange,  and  do  not  amotint  to  an  assignment  of  the  funds 
of  the  drawer  in  the  bank.  The  bank  on  which  such  an  instrument 
is  drawn  is  not  liable  before  acceptance,  and  before  then  the  instru- 
ment is  revocable  by  the  drawer.  This  decision  has  been  followed 
in  Atty.  Gen.  v.  Continental  L,.  Ins.  Co.,  71  N.  Y.  330,  27  Am.  Rep. 
55,  and  in  the  case  of  Imboden  v.  Perrie,  13  Lea  (Tenn.)  506.  See 
also  Chapman  v.  White,  6  N.  Y.  412,  57  Am.  Dec.  464.  So.  in  Detroit 
Second  Nat.  Bank  v.  Williams,  13  Mich.  282,  the  check  having  been 
given  in  this  case  for  the  exact  amount  on  deposit,  the  court  said  : 
"Without  acceptance  by  the  bank,  or  some  special  undertaking  on 
its  part,  we  do  not  think  the  bank  could  be  held  liable  upon  a  check, 
as  such,  to  the  payee.  There  is  no  privity  of  contract  between  the 
payee  and  the  drawee,  and  if  the  money  is  not  paid  upon  the  check, 
the  drawee  is  only  accountable  to  the  drawer.  The  payee  does  not 
take  an  unaccepted  check  relying  upon  the  credit  of  the  drawee,  but 
that  of  the  drawer." 

Check  for  Amount  Greater  than  Deposit. — On  the  other  hand,  it 
has  also  been  held  that  a  check  drawn  for  more  than  the  amount  on 
deposit  gives  the  check  holder  no  right  to  the  actual  balance. 
Dana  v.  Boston  Third  Nat.  Bank,  13  Allen  (Mass.)  445,  90  Am. 
Dec.  216  ;  Beauregard  v.  Knowlton,  156  Mass.  395  ;Coatesz^.  Preston, 
105  111.  473.  See  also  Gibson  v.  Cooke,  20  Pick.  (Mass.)  15.  But  com- 
pare Bromley  v.  Commercial  Nat.  Bank,  9  Phila.  (Pa.)  522. 

(2)  Liability  Affirmed. — The  authorities  affirming  the  liability  of 
the  bank  maintain  :  (a)  that  it  is  the  universal  custom  and  usage 
of  banks  to  honor  their  customers'  genuine  checks  when  properU' 
presented  by  parties  entitled  to  receive  their  amount,  a  sufficient 
amount  being  on  deposit  at  the  time  to  the  credit  of  the  drawer  ; 
relying  upon  this  custom,  the  customer  makes  his  deposit  and  the 
check  holder  receives  the  check,  an  implied  contract  thereby  arising 
between  the  bank  and  the  check  holder  for  the  breach  of  which  by 
the  bank  the  check  holder  will  be  entitled  to  sue  ;  (,b)  that  a  check 
drawn  upon  sufficient  funds  is  an  absolute  appropriation,  in  effect 
an  assignment,  of  the  funds,  to  the  amount  of  the  check,  in 
the  hands  of  the  banker,   who   after  notice   should  hold  the  amount 


1%  CHECKS  [VOIy  I 

Notes 

to  the  credit  of  the  holder  and  account  to  him  for  the  same ; 
(r)  that  one  for  whose  benefit  a  promise  is  made  by  another  can 
maintain  an  action  upon  such  promise. 

The  following-  authorities  advance  the  foregoing-  g-rounds. 

(a)  Implied  Contract, — Illinois. — Munn  v.  Burch,  25111.  35  ;  Chicago 
M.  &  F.  Ins.  Co.  V.  Stanford,  28  111.  168,  81  Am.  Dec.  270  ;  Chicago 
Fourth  Nat.  Bank  v.  City  Nat.  Bank,  68  111.  398. 

lozva. — Roberts  v.  Corbin,  26  Iowa  315,  96  Ayi.  Dec.  146. 

AVw/?<^/&j.— Weinstock  z'.  Bellwood,  12  Bush  (Ky.)  139. 

Louisiana. — Vanbibber  v.  State  Bank,  14  La.  Ann.  486,  74  Am. 
Dec.  442.  The  decision  in  this  case  was  overruled  by  the  court  in 
Case  V.  Henderson,  23  La.  Ann.  49,  8  Am.  Rep.  590,  and  in  Case  v. 
Marchand,  23  La.  Ann.  60,  the  last  two  cases  being  in  turn  overruled 
by  Gordon  v.  Muchler,  34  La.  Ann.  604. 

Nebraska.— Tonn&r  v.  Smith,  31  Neb.  107,  28  Am.  St.  Rep.  510. 

South  Carolina. — Fogarties  v.  State  Bank,  12  Rich.  L.  (S.  Car.) 
518,  78  Am.  Dec.  468  (O'Neai^Iv,  C.  J.,  dissenting)  ;  Simmons  Hard- 
ware Co.  V.  Greenwood  Bank,  41  S.  Car.  177,  44  Am.  St.  Rep.  700. 

Leading  Case. — ^The  case  of  Munn  v.  Burch,  25,  111.  25,  may  be  re- 
garded as  the  leading  case  in  this  country  which  maintains  this 
view.  In  delivering  the  opinion  of  the  court,  Caton,  C.  J.,  said: 
"When  there  is  a  certain  well-beaten  track  upon  any  subject  which 
the  commercial  public  habitually  follows,  which  business  men  almost 
or  quite  universally  pursue,  without  express  promise  or  dictation, 
everybody  has  a  right  to  assume  that  all  similarly  situated,  or  in  the 
way  of  that  road,  will  pursue  it.  That  is  what  is  called  commercial 
custom  or  usage,  and  enters  into  and  forms  a  part  of  every  contract 
to  which  it  is  applicable.  These  are  principles  of  the  law  merchant, 
which  have  been  adopted  and  have  become  a  part  of  the  common 
law.  *  ■*  *  Where  a  custom  is  so  universal  and  of  such  antiquity 
that  all  men  must  be  presumed  to  know  it,  courts  will  not  pretend 
to  be  more  ignorant  than  the  rest  of  mankind,  but  will  recognize 
and  act  upon  it.  "^  *  *  To  say  that  the  holder  of  a  bank  check  has 
not  both  a  legal  and  an  equitable  right,  after  presentation  of  the 
check,  to  the  inoney  of  the  drawer  in  the  hands  of  the  banker  would 
destroy  the  most  valuable  feature  of  bank  deposits  and  checks. 
Without  it  this  whole  system  would  become  worthless  and  destroyed. 
Unless  the  depositor  can  be  thus  accommodated,  it  is  worth  no  man's 
while  to  keep  a  deposit  account  with  a  bank.  And  no  man  will  wish 
to  be  troubled  with  the  check  of  the  best  drawer  if  he  acquires  no 
right  by  its  presentation,  and  is  only  to  receive  pay  upon  it  as  a 
matter  of  favor.  But  we  are  entirely  satisfied  that  such  is  not  and 
cannot  be  the  law.  Well-recognized  legal  principles  lead  us  inevita- 
bly to  the  same  result,  which  commercial  convenience  requires. 
This  universal  custom  shows  us  what  the  contract  of  all  parties  is. 
It  shows  us  that  the  banker,  when  he  receives  the  deposit,  agrees 
with  the  depositor  to  pay  it  out,  on  the  presentation  of  his  checks, 
in  such  sums  as  those  checks  may  call  for,  and  to  the  person  pre- 
senting them,  and  with  the  whole  world  he  agrees  that  whoever 
shall  become  the  owner  of  such  check,  shall,  upon  presentation, 
thereby  become  the  owner,  and  entitled  to  receive  the  amount  called 
for  by  the  check,  provided  the  drawer  shall  at  that  time  have  that, 
amount  on  deposit.  Who  shall  object  to  that  portion  of  the  contract 
which  the  law  raises  by  implication  on  the  part  of  the  banker  to  the 
third  person — to  anybody  and  to  everybody  ?     Surely  every  sound 


B  CAS]  CHECKS  197 

Notes 

lawyer  will  at  once  perceive  a  privity  of  contract  between  the  banker 
and  the  holder  of  the  check,  created  by  the  implied  promise  held 
out  to  the  world  by  the  banker  on  the  one  side  and  the  receiving-  of 
the  check  for  value  and  the  presenting-  it  on  the  other." 

Mr.  Daniel,  in  his  work  on  Negotiable  Instruments  (4th  ed.)  vol. 
2,  ^  1638,  says:  "The  objection  to  the  check  holder's  suing  the 
bank,  on  the  ground  that  there  is  no  privity  between  him  and  the 
bank,  seems  to  us  utterly  untenable.  It  is  true  there  is  no  privity 
before  the  presentment  of  the  check,  but  by  that  very  act  they  are 
brought  in  privity  and  the  check  holder's  right  to  sue  the  bank  com- 
pleted." 

(b)  Assignment.— Munn  7'.  Burch,25  111.  35,ChicagoM.&F.  Ins.  Co. 
V.  Stanford,  28  111.  168,  81  Am.  Dec.  270  ;  Bickford  v.  Chicago  First 
Nat.  Bank,  42  111.  238,  89  Am.  Dec.  436  ;  Brown  v.  Leckie,  43  111.  497  ; 
Chicago  Fourth  Nat.  Bank  z'.  City  Nat.  Bank,  68  111.  398;  Union  Nat. 
Bank  v.  Oceana  County  Bank,  80  111.  212,  22  Am.  Rep.  185  ;  Spring- 
field M.  &  F.  Ins.  Co.  V.  Peck,  102  111.  265  ;  Ridgely  Nat.  Bank  v. 
Patton,  109  111.  479  ;  National  Bank  of  America  v.  Indiana  Banking 
Co.,  114  111.  483  ;  Richardson  v.  International  Bank,  11  111.  App.  586; 
International  Bank  v.  Jones,  15  111.  App.  596;  Merchants'  Nat.  Bank 
V.  Ritzinger,  20  111.  App.  27  ;  International  Bank  v.  Jones,  20  111. 
App.  127  ;  Metropolitan  Nat.  Bank  v.  Jones,  137  111.  634,  31  Am.  St. 
Rep.  403  ;  Lester  zk  Given,  8  Bush  (Ky.)  357;  Weinstock  v.  Bellwood, 
12  Bush  (Ky. )  139  ;  Fogarties  v.  State  Bank,  12  Rich.  L.  (S.  Car.)  518, 
78  Am.  Dec.  468  (0'Neai,l,  C.  J.  dissenting);  Peases.  Landauer,  63 
Wis.  20,  53  Am.  Rep.  247. 

In  Lester  v.  Given,  8  Bush  (Ky.)  357,  it  was  held  that  a  check 
was  an  absolute  appropriation  of  so  much  money  in  the  hands  of 
the  bankers  to  the  holder,  to  remain  there  until  called  for,  and 
could  not,  after  notice,  be  withdrawn  by  the  drawer.  And  in 
Pease  v.  Landauer,  63  Wis.  20,  53  Am.  Rep.  247,  it  was  held  that,  as 
between  the  drawer  and  the  holder  of  a  check  for  value,  the  bank 
being  indifferent,  there  was  an  equitable  assignment  of  the  fund  to 
the  amount  of  the  check,  the  payment  of  which  could  not  arbitrarily 
be  stopped  by  the  drawer. 

(c)  Promise  to  One  for  Benefit  of  Another. — Munn  v.  Burch,25Ill.  35; 
Fogarties  v.  State  Bank,  12  Rich.  L.  (S.  Car.)  518,  78  Am.  Dec.  468 
(O'Neai,!,,  C.  J.,  disse7tting) ;  Roberts  v.  Corbin,  26  Iowa  315,  96  Am. 
Dec.  146  ;  Fonner  v.  Smith,  31  Neb.  107,  28  Am.  St.  Rep.  510. 

In  Fogarties  v.  State  Bank,  12  Rich.  L.  (S.  Car.)  518,  78  Am.  Dec. 
468,  Johnston,  J.,  said  :  "It  is  believed  to  be  incontrovertibly  true 
that  he  for  whose  benefit  a  promise  is  made  may  maintain  an  action 
upon  it,  though  no  consideration  (except  in  a  commercial  sense,  as  I 
have  endeavored  to  explain  it)  pass  from  him  to  the  defendant,  nor 
any  promise  from  the  defendant  to  him." 

So  Caton,  J.,  in  Munn  v.  Burch,  25  111.  35,  said  :  "It  is  a  familiar 
principle  of  daily  illustration  that  a  promise  made  to  the  public  that 
the  performance  of  a  particular  act  shall  entitle  the  person  perform- 
ing the  act  to  a  particular  right,  is  a  valid  assumpsit  to  such  person. 
The  promise  on  the  one  hand,  and  the  performance  on  the  other, 
create  a  privity  between  the  parties  as  intimate  and  as  obligatory 
as  if  the  promise  had  originally  been  made  to  the  particular  person." 

Same  —  Same  —  Amount  Recoverable.  —  In  those  jurisdictions 
where  the  check  holder  is  allowed  to  bring  his  action  against 
the  bank  the  measure  of  damages  is  usually  the  amount  of  the 
check   wrongfully   dishonored.      Munn  v.    Burch,    25   111.   35;     Chi- 


198  TRANSFER  OF  DEPOSIT  [VOE  1 

First  Nat.  Bank  of  Cambridg-e,  111.  v.  Hall 

cago  M.  &  F.  Ins.  Co.  v.  Stanford,  28  111.  168,  81  Am.  Dec.  270 ; 
Bickford  v.  Chicago  First  Nat.  Bank,  42  111.  238,  89  Am.  Dec.  436  ; 
Brown  v.  Leckie,  43  111.  497  ;  Chicago  Fourth  Nat.  Bank  v.  City  Nat. 
Bank,  68  111.  398  ;  Union  Nat.  Bank  v.  Oceana  County  Bank,  80  111. 
212,  22  Am.  Rep.  185 ;  Springfield  IVP.  &  F.  Ins.  Co.  v.  Peck, 
102  111.  265;  Ridgely  Nat.  Bank  v.  Patton,  109  111.479  ;  National 
Bank  of  America  v.  Indiana  Banking  Co.,  114  111.  483;  Metropoli- 
tan Nat.  Bank  v.  Jones,  137  111.  634,  31  Am.  St.  Rep.  403  ; 
Richardson  v.  International  Bank,  11  111.  App.  582  ;  International 
Bank  v.  Jones,  15  111.  App.  594.  In  the  case  of  Merchants'  Nat.  Bank 
V.  Ritzinger,  20  111.  App.  27,  the  check  holder  was  allowed  to  recover, 
in  addition  to  the  amount  of  the  check,  interest  also.  Weinstock  v. 
Bellwood,  12  Bush  (Kv.)  139;  Fogarties  v.  State  Bank,  12  Rich.  (S. 
Car.)  518,  78  Am.  Dec".  468. 


First  Nat.  Bank  of  Cambridge,  Ile. 
Haee  et  al. 

{Supreme  Court  of  Alabama,  Oct.  2g,  iSgS.) 

Questions  of  Fact — Review. — Where  a  case  was  tried  upon  parole 
evidence,  on  appeal,  it  is  the  rule  to  indulge  all  reasonable  presump- 
tions in  favor  of  the  decision  of  the  trial  court  upon  questions  of 
fact,  and  not  to  reverse  unless  it  clearly   appears  to  be   erroneous. 

Application  of  Deposits — Verbal  instructions.* — Where  it  appears 
that  a  note  was  deposited  in  a  bank  where  it  was  payable,  and 
where  there  was  on  deposit,  at  its  inaturity,  suflicient  cost  to  the 
credit  of  the  maker  to  pay  it  ;  and  the  cashier  had  been  instructed  by 
the  maker  to  appropriate  such  cost  to  the  payment  of  the  note  ;  and 
that  on  the  morning  of  the  day  it  fell  due,  after  banking  hours,  in 
the  bank,  the  maker  tendered  the  cashier  a  check  on  such  cost  in 
payment  of  the  note,  and  was  advised  by  the  cashier  that  a  check 
was  unnecessary  because  the  note  had  already  been  charged  to  the 
maker,  and  there  was  exhibited  by  the  cashier  to  the  maker,  the 
note  stuck  on  the  canceling  spindle  and  stamped  "Paid"  such  note 
is,  in  fact,  paid  in  money,  a  verbal  instruction  by  a  depositor  to  the 
cashier  of  a  bank  to  apply  his  money  on  deposit  in  a  certain  way 
being  sufficient  authority. 

Same — National  Banks — Insolvency.* — When  a  national  bank  is 
insolvent,  general  deposits  cannot  be  applied  to  the  payment  of  a 
note  payable  at  such  bank  ;  although  the  bank  is  open  when  the 
depositor  orders  such  application  of  his  deposits,  and  he  is  in  igno- 
rance of  such  insolvency. 

Appeae  by  plaintiff  from  L/auderdale  county  circuit 
court.     Reversed. 

*See  notes  at  end  of  case. 


fl 


B  CAS]  TRANSFER  OF  DEPOSIT  199 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

The  defendants  filed  the  following-  special  pleas: 
"Second.  That  the  note  sued  on  in  this  cause  was  hy- 
pothecated bv  the  Florence  National  Bank  with  the  plan- 
tiff  bank  as  collateral  security  for  a  certificate  of  deposit 
issued  by  said  Florence  National  Bank  to  the  plaintiff. 
That  said  note  in  suit  was  made  payable  to  and  at  the 
Florence  National  Bank,  and  was  by  said  plaintiff, 
before  its  maturity,  sent  to  the  Florence  National 
Bank  'for  collection  for  account  First  National  Bank, 
Cambridg-e,  Illinois.'  That  said  note  matured  on  the 
22d  day  of  June,  1891,  and  that  on  the  morning-  of  said 
day,  at  the  commencement  of  business  on  that  day,  the 
defendants  had  to  their  credit  in  said  bank  more  than 
suflBcient  funds  to  meet  said  note,  principal  and  inter- 
est, in  full.  That  on  the  morning-  of  said  day,  about 
the  hour  of  nine  o'clock,  the  defendant  went  to  said 
bank,  and  tendered  his  check  for  the  full  amount  of 
said  note,  but  was  told  by  the  cashier  of  said  Florence 
National  Bank  that  said  note  had  already  been  charged 
to  defendant's  account,  and  said  note  was  exhibited  to  the 
defendant  stuck  on  the  canceling-  spindle  and  stamped 
'Paid.'  And  the  defendant  alleges  that  the  same  was 
thereby  paid,  and  was  charged  to  his  account,  and  was 
subsequently  delivered  to  him.  That  at  said  time  said 
Florence  National  Bank  had  in  its  vaults  more  than 
sufficient  funds  in  currency, subject  to  check, to  have  paid 
said  note  in  full.  That  the  defendants  had  no  knowl- 
edge or  notice,  until  after  the  failure  of  said  Florence 
National  Bank,  that  said  note  had  been  transferred  by 
said  Florence  National  Bank  to  the  plaintiff.  Third. 
That  the  note  sued  on  in  this  cause  was  transferred  to 
the  plaintiff  bank  on  or  about  the  17th  day  of  June, 
1891,  as  collateral  security  for  a  certain  certificate  of 
deposit  issued  to  the  plaintiff  bank.  That  said  note  in 
suit  was  made  payable  at  the  Florence  National  Bank, 
and  was  by  said  plaintiff  bank,  before  its  maturity, 
forwarded  to  the  said  Florence  National  Bank  'for 
collection  for  account  First  National  Bank,  Cambridg-e, 
Illinois.'  That  said  note  matured  and  became  due 
and  payable  on  the  22d  day  of    June,  1891,  and  that  on 


200  TRANSFER  OF  DEPOSIT  [vOL  I 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

the  morning"  of  said  day,  at  the  time  said  bank  opened 
for  business,  defendants  had  to  their  credit  in  said 
bank  more  than  sufiBcient  funds  with  which  to  pay  said 
note  in  full,  which  said  funds  had  been  deposited  for 
the  purpose  of  paying  said  note,  of  which  said  purpose 
the  cashier  of  said  Florence  National  Bank  had  been 
advised,  and  instructed  to  so  appropriate  a  sufEcient 
portion  of  said  deposit.  That  on  the  morning-  of  said 
22d  day  of  June,  1891,  shortly  after  the  opening"  of  the 
bank  for  business  on  that  day,  the  defendant  John  W. 
Hall,  one  of  the  members  of  said  firm  of  Hall  &  Wis- 
dom, went  to  the  said  Florence  National  Bank,  and 
tendered  the  cashier  of  the  same  a  check  on  said  funds 
deposited  as  aforesaid  in  payment  of  said  note,  but  was 
advised  by  said  cashier  that  a  check  was  unnecessary, 
as  said  note  had  already  been  charg-ed  to  the  account  of 
defendants  and  canceled,  and  said  cashier  exhibited  to 
said  defendant  said  note  stuck  on  the  canceling"  spindle 
and  stamped  'Paid,'  and  defendant  alleg"es  that  said 
note  was  paid  and  charg"ed  to  his  account,  and  subse- 
quently delivered  to  him.  That  at  said  time  the  said 
Florence  National  Bank  had  in  its  vaults,  in  cash, 
subject  to  check,  more  than  sufficient  funds  with  which 
to  have  paid  said  note  in  full.  That  at  said  time 
defendants  had  no  notice  or  knowledg"e  that  said  note 
had  been  transferred  to  plaintiff,  and  were  not  advised 
of  said  transfer  until  after  the  failure  of  said  bank." 
Plaintiff  demurred  to  the  second  plea  as  follows: 
"(1)  Said  plea  is  arg-umentative.  (2)  The  facts  set  out 
in  said  plea  do  not  show  a  payment  of  said  note  sued 
on.  (3)  That  the  sticking-  the  note  sued  on  on  the 
canceling-  spindle  by  the  cashier  of  the  Florence 
jSTational  Bank  did  not  constitute  a  payment  or  discharg"e 
thereof.  (4)  That  the  instruction  by  defendants  to 
the  cashier  of  Florence  National  Bank  to  use  their 
iunds  in  bank  to  pay  the  note  sued  on  constituted  said 
cashier  the  agent  of  said  defendants,  and  said  note  would 
not  have  been  paid  until  said  ag-ent  actually  applied 
the  funds  of  said  defendants  to  the  payment  thereof, 
and  said  plea  does  not  show    that  such  application  was 


B  CAS]  TRANSFER  OF  DEPOSIT  201 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

ever  made.  (5)  Said  plea  does  not  state  or  show,  as 
matters  of  fact,  that  said  note  ever  was  charg-ed  to  the 
account  of  defendants.  (6)  Said  plea  does  not  state  or 
show  that  the  amount  of  said  note  ever  was  credited 
to  the  account  of  the  plaintiff.  (7)  The  fact  that  de- 
fendants had  no  knowledge  of  the  transfer  of  said  note 
is  no  defense  to  this  suit,  and  does  not  excuse  defendant 
from  paying-  it  in  the  proper  manner  and  to  the  proper 
person.  (8)  Said  note  having-  been  sent  by  plaintiff  to 
the  Florence  National  Bank  for  collection,  said  Florence 
National  Bank  had  no  authority  to  receive  anything- 
but  money  in  payment  thereof,  and  said  plea  does  not 
show  that  any  money  was  ever  paid  or  tendered  there- 
for." To  the  third  plea  the  plaintiff  demurred  upon 
the  following-  g-rounds:  "(1)  The  facts  in  said  plea  do 
not  show  a  payment  of  said  note.  (2)  The  tender  of  a 
check  did  not  constitute  a  payment  of  said  note.  (3) 
The  placing-  of  said  note  on  the  canceling-  spindle  did 
not  constitute  a  payment  thereof.  (4)  The  facts  that 
said  note  was  placed  on  the  canceling-  spindle,  and 
subsequently  charg-ed  to  the  account  of  defendants  and 
delivered  to  them,  do  not  constitute  a  payment  thereof 
nor  discharg-e  the  obligation  of  defendants.  (5)  Said 
plea  shows  that  the  cashier  of  Florence  National  Bank 
was  made  the  ag-ents  of  defendants  to  appropriate  their 
funds  to  the  payment  of  said  note,  and  until  said  funds 
were  so  appropriated  said  note  was  not  paid,  and  the 
plea  does  not  allege  or  show  any  such  appropriation. 
(6)  Nothingf  but  an  actual  payment  of  money  by  defend- 
ants or  their  agent  to  plaintiff  or  its  agent  would  be  a 
payment  thereof,  unless  plaintiff  consented  to  receive 
■something-  else  in  lieu  thereof,  and  said  plea  does  not 
show  any  such  payment  or  any  such  consent,  or  any 
discharge  of  the  obligation  of  said  note.  (7)  The  facts 
that  said  note  was  placed  on  the  canceling-  spindle, 
stamped  'Paid'  and  charged  to  the  account  of  defendants, 
did  not  constitute  a  payment  or  discharg-e  thereof, 
although  the  said  Florence  National  Bank  had  sufficient 
funds  to  pay;  and  said  plea  does  not  show  that  any 
funds  ever  were  applied    to  the  payment   thereof,  or 


202  TRANSFER  OF  DEPOSIT  [vOL  I 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

that  any  credit  ever  was  entered  in  favor  of  the  plaintiff, 
nor  that  the  obligfation  of  said  note  ever  has  been  dis- 
charg"ed."  These  demurrers  being-  overruled,  plaintiff 
excepted,  and  filed  the  followinof  replications  to  defen- 
dants' second  and  third  pleas:  "(1)  That  the  facts 
stated  in  said  pleas  are  not  true.  (2)  That  the  authority 
from  the  plaintiff  to  the  Florence  National  Bank  to 
collect  the  note  in  suit  had  been  revoked  before  the 
said  note  was  received  by  said  Florence  National  Bank, 
and  before  the  said  22d  day  of  June,  1891.  (3)  That 
at  the  time  of  the  maturity  of  said  note,  on  the  22d  day 
of  June,  1891,  and  at  the  time  of  the  alleg^ed  paj^meht, 
said  Florence  National  Bank  was  insolvent,  and  the  use 
of  the  funds  referred  to  in  said  pleas  (if  any  funds  were 
used)  was  in  violation  of  the  national  banking-  laws, 
and  void.  (4)  That  at  the  time  of  the  maturity  of 
said  note,  on  said  22d  day  of  June,  1891,  said  Florence 
National  Bank  was  insolvent,  and  not  authorized  to 
make  said  collection  in  the  manner  alleg-ed.  (5)  That 
on  said  22d  day  of  June,  1891,  said  Florence  National 
Bank,  being-  a  national  bank  under  the  banking- laws 
of  the  United  States,  was  in  contemplation  of  insol- 
vency, and  had  no  authority,  under  the  laws  of  the 
United  States,  to  make  any  payment  or  do  any  act 
which  would  constitute  a  preference  of  one  creditor 
over  the  others,  or  which  would  prevent  the  ratable 
distribution  of  its  assets  among-  its  creditors.  (6)  That, 
at  the  time  of  and  prior  to  the  allegfed  payment  of  the 
note  sued  on,  the  Florence  National  Bank  of  Florence, 
Ala.,  was  a  national  bank,  org-anized  under  the  laws  of 
the  United  States,  and  was  insolvent,  and  the  said 
John  Hall  and  the  plaintiff  had  notice  of  such  insolven- 
cy, and  the  statutes  of  the  United  States  prohibited 
such  bank  from  making  the  payment  alleg-ed  in  said 
pleas,  and  this  plaintiff  did  not  ag-ree  to  or  ratify  the 
facts  alleg-ed  in  said  plea  w^hich  it  is  alleg-ed  paid  said 
note.  (7)  That,  at  and  prior  to  the  time  of  the  al- 
leg-ed payment  of  the  note  sued  on.  as  the  same  is 
shown  by  said  pleas,  the  Florence  National  Bank  was 
a  national  bank  org-anized  under  the  laws  of  the  United 


B  CAS]  TRANSFER  OF  DEPOSIT  203 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

States  known  as  the  'Banking-  Act,'  and  at  and  prior 
to  said  allejjfed  payment  was  in  contemplation  of  in- 
solvency, and  this  was  known  to  said  Tice  and  to  this 
plaintiff,  and  the  alleg^ed  payment  of  said  note  was  pro- 
hibited by,  and  in  violation  of,  the  statutes  of  the  United 
States,  and  this  plaintiff  never  assented,  agreed  to,  or 
ratified  the  same.  (8)  That,  at  and  prior  to  the  alleg^ed 
payment  of  the  note  sued  on  as  alleg^ed  in  said  plea, 
the  Florence  National  Bank  of  Florence,  Ala.,  was  a 
national  bank,  org^anized  under  the  laws  of  the  United 
States  known  as  the  'National  Banking-  Act,'  and  con- 
templated insolvency, and  was  in  fact  insolvent,  and  this 
was  known  to  said  Tice,  who  was  the  cashier  of  said 
Florence  National  Bank;  and  at  the  time  of  the  alleg-ed 
payment  of  said  note,  as  shown  by  said  pleas,  said  Tice, 
as  the  ag-ent  of  defendants,  had  no  authority  to  use  the 
funds  of  said  bank  to  pay  the  debt  of  defendants;  and 
the  said  Tice,  or  the  Florence  National  Bank,  as  the 
agent  of  plaintiff,  had  no  authority  to  accept  such  funds 
in  payment  of  the  debt  due  to  plaintiff;  and  the  act  of 
said  Tice  for  himself,  or  as  cashier  of  Florence  Nation- 
al Bank,  ia  paying-  the  note  to  plaintiff,  as  alleged  in 
said  pleas,  was  in  violation  of  the  statutes  of  the  United 
States,  and  was  void,  and  plaintiff  did  not  assent  to  or 
ratify  the  same.  (9)  That  at  and  prior  to  the  time  of 
alleged  payment  of  the  note  sued  on,  as  shown  by  said 
pleas,  the  Florence  National  Bank  was  a  national  bank- 
organized  under  the  laws  of  the  United  States  known 
as  the  'National  Banking-  Act,'  and  was  in  contempla- 
tion of  insolvency,  and  was  actually  insolvent,  and  this 
was  known  to  said  Tice,  who  was  the  cashier  of  said 
bank,  and  to  this  plaintiff;  and  the  statutes  ©f  the 
United  States  prohibited  said  Tice  or  said  bank,  as  the 
agent  of  plaintiff,  from  receiving-  the  funds  of  said  bank 
in  payment  of  the  note  due  plaintiff,  and  prohibited 
plaintiff  from  receiving-  the  same;  and  plaintiff  did  not 
agree  to  or  assent  to  or  ratify  the  alleg-ed  payment  of 
said  note  as  shown  by  said  pleas,  and  was  not  present 
when  the  alleged  facts  in  said  pleas  with  reg-ard  to  the 
alleged  payment  took  place." 


204  TRANSFER  OF  DEPOSIT  [VOL  I 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

Defendants  then  demurred  as  follows:  "First.  To  the 
second  replication,    because   said   count  shows   on   its 
face  that  authority  had  been  delegated  to  the  Florence 
National  Bank  to  make   collection  of  the  note  in   suit, 
which  authority,    it  is  alleg-ed,    was  revoked,    but  said 
count  fails  to  alleg-e  or  show  that   defendants  had   any 
knowledge  or  notice  of  said  alleged  revocation,  or  that 
the  obligation  in  suit  was  not  in  the  possession  of    the 
said  bank,  or   that  said  Florence  National  Bank   was 
not  clothed  wnth  apparent  authority  to  collect  said  note, 
or  of  any  facts   which  would  be  a  sufficient  legal    an- 
swer to  said  pleas.     Second.  To  the  third   replication, 
because  said  count  alleges  that,   at  the  time  of  the  ma- 
turity of  said   note,  the   Florence   National  Bank   was 
insolvent,   but  said  count  fails   to  allege   that  such    in- 
solvency was  known  to  the  defendants,  or  that  they  had 
any  notice  of  the  same,  or  that  at  the  time  of  the   ma- 
turity of  said    note  said  bank  was   not   transacting   its 
affairs  in  the   regular  course  of   business,  or  that  the 
plaintiff  has  any  legal  right  to  raise  the  question  sought 
to  be  raised  by  said  count,  or  to  invoke  the  act  referred 
to.     For  further  demurrer  to  said   count,  defendants 
say  that  the  question  sought  to  be  raised  by  said  count 
are  questions   which  can  only  be  raised  by  the   comp- 
troller of  the  currency,  the   bank  examiner,  or  the  re- 
ceiver of  the  association.     Third.   To   the  fourth    rep- 
lication: For  the  grounds  above  stated  last  above,   de- 
fendants demur  to  said  fourth  replication.     Fourth.   To 
the  fifth  replication,  because  said  count  alleges  that  the 
Florence   National   Bank   was  in   contemplation  of  in- 
solvency, but  said  count   fails  to  allege  or  show   that 
the  defendants    had  any   notice   or  knowledge    of  said 
contemplated  insolvency,  or  that  said  Florence  National 
Bank  was  not   doing    business    in  the  regular  course, 
or  that  said  bank  did  not   have  apparent  authority  to 
transact  business.     Defendants  say,  for  further  ground, 
of  demurrer  to  said  count,  that  plaintiff  cannot  legally 
assert  the   law  or  raise  the  questions  set  out  in   said 
replication,  but  that  they  are  solely    for  the    benefit  of 
the  receiver  of  a  national  bank,  and  can  only  be  raised 


B  CAS]  TRANSFER  OF  DEPOSIT  205 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

throug^h  or  by  such  receiver.  Fifth.  To  the  sixth 
replication,  because  it  is  not  shown  by  said  count  that 
the  Florence  National  Bank  had  ceased  to  do  business, 
or  that  the  authority  to  collect  said  note  had  been 
revoked,  or  that  on  said  day  it  was  not  paying-  checks 
and  transacting-  its  business  in  the  usual  course. 
Sixth.  To  the  seventh  replication,  because  said  count 
sets  forth  the  conclusions  of  the  pleader,  and  not  the 
facts  which  constituted  said  contemplated  insolvency  ; 
because  it  is  not  shown  by  said  count  that  the  defend- 
ants had  knowledg-e  or  notice  of  the  alleg-ed  contem- 
plated insolvency  of  said  bank  ;  because  the  misuse  or 
misapplication  of  the  funds  of  said  Florence  National 
Bank  by  its  officers,  when  such  bank  is  in  the  condition 
alleg-ed  in  said  seventh  count,  is  a  question  which  can 
only  be  raised  by  the  receiver  of  such  bank.  Seventh. 
To  the  eig-hth  replication,  because  it  does  not  show 
that  the  defendants  had  notice  or  knowledg'e  of  said 
insolvency  so  as  to  impute  bad  faith  to  them,  or  either 
of  them,  or  that  they,  or  either  of  them,  had  actual 
notice  or  knowledg'e  of  said  alleg-ed  insolvency  or  con- 
templated insolvency  .  For  further  g-round  of  demur- 
rer to  said  count,  defendants  say  that  the  misuse  of  the 
funds  of  said  bank,  or  the  misapplication  of  said  funds 
as  alleg-ed  in  said  count,  is  a  question  which  can  only 
be  raised  by  the  receiver  of  said  bank,  or  such  party 
as  is  leg-ally  appointed  custodian  of  its  assets,  and  can- 
not be  asserted  or  raised  by  the  plaintiff.  E^ig-hth. 
To  the  ninth  count,  because  it  does  not  show  that 
defendants  had  any  knowledg-e  or  notice  of  the  alleg-ed 
insolvency,  or  contemplated  insolvency,  of  the  Florence 
National  Bank,  or  that  the  ag-ency  of  said  bank  as  a 
collecting-  ag-ent  for  said  plaintiff  had  been  revoked  or 
annulled,  or  that  said  bank  was  not  on  said  day  paying- 
checks  and  transacting-  business  in  the  usual  course,  or 
that  plaintiff  has  any  legfal  rig-ht  to  raise  the  question 
or  invoke  the  law  referred  to  in  said  count,  such  being* 
only  for  the  receiver  of  such  bank."  These  demurrers 
being-  sustained,  plaintiff  excepted. 


206  TRANSFER  OF  DEPOSIT  [VOL  I 

First  Nat.  Bank  of  Cambridg-e,  111.  v.  Hall 

Sbnf)SO)i  d-  Jones,  for  appellant. 

C.  E.  Jordan,  Paul  Hodges,  and  E.    C.    Crozv,  for 
appellees. 

Coleman,  J.     The  appellant,  plaintiff  in  the  court 
below,  sued   John  W.   Hall  and  H.  P.   Wisdom   upon 

their  commercial  promissory  note,  pa3'able 

at  the  Florence  National  Bank.  Florence, 
Ala.,  received  by  plaintiff  in  due  course  of  trade,  for  a 
valuable  consideration  before  maturity,  and  without 
notice  of  any  defense.  The  case  was  tried  by  the  court 
without  a  ]nYy,  upon  defendants'  special  pleas  of  pay- 
ment numbered  2  and  3,  and  judg-ment  rendered  for 
the  defendants.  There  was  a  demurrer  to  each  of 
these  pleas,  which  was  overruled  by  the  court,  and 
then  replication  by  plaintiff,  to  which  replication  the 
court  sustained  a  demurrer.  The  ruling's  of  the  court 
upon  the  several  demurrers,  and   the   judg-ment  upon 

the  evidence,  upon  issue  joined,  areassig-ned 
-Review. "'^ ^"'^     as  crror.     When  a  case  is  tried  b}^  the  court 

upon  parol  evidence,  the  rule  which  pre- 
vails in  this  state  "requires  us  to  indulg-e  all  reasonable 
presumptions  in  favor  of  the  decision  of  the  court  upon 
questions  of  fact,  and  not  to  reverse  it,  unless  clearly 
satisfied  that  it  is  wrong-."  Jones  r.  White,  112  Ala. 
449,  20  South.  527  ;  Woodrow  v.  Havvving-,  105  Ala. 
240,  16  South.  720.  The  testimony  of  the  witness 
Hall,  and  of  Tice,  the  cashier  of  the  Florence  National 
Bank,  sustain  the  averments  of  facts  set  up  in  the 
special  plea  No.  3  as  constituting-  payment ;  and,  al- 
thoug-h  the  testimon}-  offered  by  plaintiff  is  in  direct 
conflict  with  the  testimony  of  defendants  upon  these 
facts,  under  the  rule  stated  we  would  not  be  justified 
in  reversing-  the  judg-ment  on  account  of  the  conclusion 
arrived  at  by  the  court  from  the  facts.  The  only  ques- 
tions left  open  for  consideration  are  those  arising-  from 
the  ruling-s  of  the  court  upon  the  demurrer  to  the  spe- 
cial pleas,  and  to  the  replications  to  these  pleas. 

We  deem  it  unnecessary  to  consider  these  questions 
relative  to  special  plea  No.  2.     The  first  count  of  the 


B  CAS]  TRANSFER  OF  DEPOSIT  207 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

complaint  and  this  plea  describe  the  note  sued  upon  as 
payable  to  the  Florence  National  Bank.  The  evidence 
is  conclusive  that  there  was  no  such  note,  and  the  note 
sued  upon  and  offered  in  evidence  was  payable  to  Hall 
&  Wisdom,  a  partnership,  and  was  payable  at  the 
Florence  National  Bank.  This  plea  was  not  sustained. 
The  third  special  plea  includes  every  legal  proposi- 
tion involved  in  the  second  plea,  and,  in  connection 
with  the  second  count  of  the  complaint,  pre- 
sents the  merits  of  both  sides  to  the  case.  Application  of  De- 
The  pleading's  show  that  John  W.  Hall  and  instruction's.* 
H.  P.  Wisdom,  the  defendants  and  makers 
of  the  note,  composed  the  partnership  of  Hall  &  Wis- 
dom, to  whom  the  note  was  made  payable,  and  by  whom 
it  was  indorsed  in  blank  ;  that  the  note  was  payable  at 
the  Florence  National  Bank  on  the  22d  of  June,  where 
the  note  was  on  that  day  for  collection  for  account  of 
plaintiff  ;  that  on  that  day,  and  prior,  there  w^as  on 
deposit  in  the  bank,  to  the  credit  of  the  partnership  of 
Hall  &  Wisdom,  more  than  sufficient  to  pay  said  note, 
and  the  cashier  had  been  advised  that  the  money  was 
deposited  for  the  purpose  of  paying-  the  note,  and  in- 
structed to  so  appropriate  it,  and  there  was  a  sufficient 
amount  of  cash  in  the  bank  at  the  time  for  this  pur- 
pose ;  that  Hall,  a  member  of  the  firm,  on  the  morning- 
of  the  22d,  after  banking-  hours,  in  the  bank,  tendered 
the  cashier  a  check  on  the  funds  on  deposit  in  payment 
of  the  note,  and  was  advised  by  the  cashier  that  a  check 
w^as  unnecessary  and  that  the  note  had  already  been 
charged  to  defendants,  and  exhibited  to  him  the  note 
canceled  and  stamped  "Paid."  We  are  of  opinion 
that  these  facts  constitute  a  payment  in  money,  and  do 
not  raise  the  question  argfued,  that  an  agfent  has  no 
authority  to  receive  a  check  in  payment  of  a  debt  or 
anything  else  than  money.  It  is  true  that  the  plea 
does  not  aver,  as  a  fact,  that  the  note  at  the  time  had 
been  charg-ed  to  defendants,  nor  that  the  amount  had 
been  credited  to  plaintiff,  or  was  ever  remitted  or  cred- 
ited to  plaintiff's  account ;  nor,  in  our  opinion,  could 
defendants  be  held  responsible  if  these  proper  entries 


208  TRANSFER  OF  DEPOSIT  [voiv  I 

First  Nat.  Bank  of  Cambridge,  111.  z'.  Hall 

were  ever  made  by  the  officers  of  the  bank.  Suppose, 
under  the  facts,  after  canceling-  and  stampingf  the  note 
"Paid,"  it  had  been  handed  to  defendants  instead  of 
sticking"  it  on  the  canceling-  spindle,  for  future  entry 
b}^  the  proper  officer,  could  there  be  any  doubt  of  a 
valid  payment?  To  hold  otherwise  would  require  the 
parties  to  g-o  throug-h  the  needless  process  of  having- 
the  money  counted  out  to  defendants,  and  the  defend- 
ants then  handing-  back  to  the  cashier  the  money,  with 
instructions  to  apply  it  to  the  note.  A  verbal  instruc- 
tion by  a  depositor  to  a  cashier  to  apply  his  money  on 
deposit  in  a  certain  way  is  sufficient  authority.  A 
check  mig-ht  furnish  more  complete  and  satisfactory 
evidence  of  the  authority,  but  a  check  is  not  necessary 
to  confer  the  authority.  If  no  money  had  in  fact 
been  deposited  to  meet  the  note,  and  defendants,  on 
the  morning-  of  the  maturity  of  the  note,  had  g-one  to 
the  bank  with  the  money,  and  paid  it  over  to  the 
cashier  in  payment,  and  the  note  had  been  surrendered 
to  him,  stamped  "Paid,"  there  could  be  no  controversy 
as  to  the  question  of  payment,  whether  such  entry  was 
ever  made  on  the  books  of  the  bank  or  not.  Can  there 
be  any  difference  in  principle  when  a  depositor  who 
has  money  in  the  bank  to  meet  his  note,  and  has  so 
informed  the  cashier,  and  instructed  him  to  apply  it  to 
the  debt,  and  on  the  day  it  falls  due  tenders  to  the 
cashier  a  check  on  the  funds  which  are  then  in  bank 
subject  to  check,  to  pay  the  debt,  and  is  informed  that 
the  check  is  unnecessary,  and  that  the  note  has  been 
paid,  and  exhibits  the  note  stamped  "Paid,"  and  hang-- 
ing-  on  the  canceling-  spindle  to  be  entered  by  the 
bookkeeper?  We  think  not,  and  it  can  make  no  differ- 
ence, in  leg-al  effect,  that  during-  the  same  da.j,  and 
before  the  proper  entries  are  made,  the  bank  suspends 
payment  and  is  closed.  The  latter  proposition,  how- 
ever, is  involved  in  the  replication,  to  which  we  will 
briefly  refer. 

Section  5242   of   the  Revised  Statutes  of  the  United 
States  reads   as  follows:   "All    transfers  of  the  notes, 


B  CAS]  TRANSFER  OF  DEPOSIT  209 

First  Nat.  Bank  of  Cambridge,  111.  v.  Hall 

bonds,    bills  of  exchang-e,    or  other    evidences   of  debt 

owing-  to  any  national   banking  association, 

or  of  deposits  to  its  credit;  all    assig-nments      smnp-xationaj 

t^  .  1  ,     J  r        Banks— liisol- 

of  mortgao-es,  sureties  on  real  estate,  or  oi  vmcy. 
judgments  or  decrees  in  its  favor;  all  deposits 
of  money,  bullion,  or  other  valuable  thing-  for  its  use, 
or  for  the  use  of  any  of  its  shareholders  or  creditors; 
and  all  payments  of  money  to  either,  made  after  the 
commission  of  an  act  of  insolvency,  or  in  contemplation 
thereof,  made  with  a  view  to  prevent  the  application 
of  its  assets  in  the  manner  prescribed  by  this  chapter, 
or  with  a  view  to  the  preference  of  one  creditor  to 
another  except  in  payment  of  its  circulating-  notes, 
shall  be  utterly  null  and  void;  and  noattachment, in  junc- 
tion or  execution,  shall  be  issued  against  such  association 
or  its  property  before  final  judgment  in  any  suit,  action, 
or  proceeding,  in  any  state,  county,  or  municipal 
court." 

It  is  the  opinion  of  the  court  that  the  facts  set  up  in 
the  plea  under  consideration,  independent  of  the  statute 
just  cited, shovv'  a  payment  of  the  note, but  that  the  stat- 
ute is  prohibitory  and  peremptory,  and  that  a  legal  pay- 
ment could  not  be  made  out  of  mone3's  deposited  to  his 
general  credit,  after  insolvency  of  the  bank,  or  in  con- 
templation of  insolvency,  and  that  there  was  no  legal 
payment  of  the  note.  It  is  the  opinion  of  the  court  that 
Hall's  ignorance  of  the  financial  condition  of  the  bank, 
or  that  it  contemplated  insolvency,  made  no  difference 
as  to  the  legality  and  invalidity  of  the  intended  pay- 
ment. Bank  r.  Butler,  129  U.  S.  223,  9  Sup.  Ct.  281. 
The  court,  therefore,  holds  that  the  replication  presented 
a  complete  answer  to  the  plea,  and  that  the  trial  court 
improperly  sustained  the  demurrer. 

The  writer  is  of  opinion  that  if  Hall,  in  ignorance  of 
the  condition  of  the  bank,  in  the  usual  course  of  busi- 
ness, deposited  the  money  in  bank  to  his  credit,  and  on 
Saturday  preceding  the  Monday  gave  instructions  to 
the  cashier  to  so  apply  it,  and  he  further  deposited  other 
money  on  the  morning  of  the  closing  of  the  bank,  and 
went  to  the  bank  while    it  was  doing  business  as  usual 

B  CAS — 14 


210  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

to  pay  the  note,  and  was  informed  by  the  cashier  that 
the  mone}^  had  been  so  applied,  and  exhibited  the  note 
canceled  and  stamped  "Paid,"  and  it  was  subsequently 
so  entered  up  under  the  directions  of  the  receiver,  and 
the  note  surrendered  to  Hall,  that  the  payment  was 
valid,  at  least  as  to  the  plaintiff,  whatever  may  be  the 
rig-hts  of  the  receiver  in  the  premises.  The  effect  of 
the  payment  by  Hall  thus  made  to  the  Florence 
National  Bank,  authorized  by  plaintiff,  to  collect  for 
plaintiff,  was  to  transfer  the  deposit  from  the  credit 
of  Hall  &  Wisdom  to  the  credit  of  the  plaintiff,  to 
whose  credit  in  law  it  stood  when  the  bank  closed 
its  doors,  as  much  so  as  if  the  credit  had  been  formerly 
entered  at  the  time.  Under  the  view  taken  b}"  the 
court,  the  case  must  be  reversed  and  remanded.  Re- 
versed and  remanded. 

Coleman,   J.,    dissented.     Brickell,    C.  J.,  con- 
curred with  Coleman,  J. 


Verbal  Transfer  of  Deposit. — ^Deposits.  ordinarily  transferable  by 
•check  or  draft,  may  be  transferred  by  parol.  McEwen  v.  Davis,  39 
Ind.;i09.   See  NefF  t-.  Greene  County  Nat.  Bank,  89  Mo.  581. 

National  Banks — Transfer  of  Deposit  after  insolvency — Knowledge. 
— To  make  transfers, assig"nments, deposits  and  payments  void,  under 
the  National  Bank  act,  it  is  only  necessarj'  that  the  insolvency 
should  be  in  the  contemplation  of  the  bank  making-  the  transfers, 
etc.,  and  not  that  it  should  also  be  known  to  or  contemplated  by  the 
partY  to  whoin  thev  are  made.  Case  v.  Citizens'  Bank,  2  Woods 
{U.  S.)  23,  1  Nat.  Bank  Cas.  276.  But  compare  Roberts  v.  Hill,  24, 
Fed.  Rep.  571. 


Merrill 
National  Bank  of  Jacksonville  (two  cases). 

{Siiprone  Court  of  the   United  States,  February  20,  i8gg.) 

'  Right  of  Appeal. — A  decree  of  a  circuit  court  was  reversed  by  the 
circuit  court  of  appeals  in  a  decree  containing-  specific  directions, 
and  the  circuit  court  entered  a  decree  in  conformity  with  such  direc- 


B  CAS]  INSOLVENCY  211 

Merrill  Z'.  National  Bank  of  Jacksonville 

iions  ;  and  an  appeal  therefrom  was  praj^ed  to  the  circuit  court  of 
appeals,  which  was  dismissed.  The  second  decree  of  the  circuit 
court  was  entered  before  an  appeal  from  the  first  decree  of  the  cir- 
cuit court  of  appeals  was  presented  to  the  supreme  court.  Held, 
that  this  proiuptness  of  action  did  not  cut  off  such  appeal  to  the 
supreme  court,  and  any  difficulty  on  the  part  of  the  supreme  court 
in  dealing-  with  the  cause  in  the  circuit  court  was  obviated  by  an 
appeal  from  the  action  of  the  circuit  court  of  appeals  in  dismissing- 
an  appeal  from  the  second  decree  of  the  circuit  court,  which  broug-ht 
before  the  supreme  court  the  record  subsequent  to  the  first  decree  of 
the  circuit  court  of  appeals. 

Insolvent  National  Bank — Dividends — Equity  Jurisdiction. ^In  a 
suit  hy  a  creditor  of  an  insolvent  national  bank  ag-ainst  its  receiver, 
where  the  controversy'  involved  the  question  on  what  basis  dividends 
should  have  been  declared,  and  therein  the  enforcement  of  the  ad- 
ministration of  the  trust  in  accordance  with  law,  the  contention  that 
the  bill  should  be  dismissed  because  of  adequate  remedy  at  law  was 
without  merit. 

Same — Same — Laches — Estoppel. — Less  than  two  years  had  elapsed 
from  the  paj-ment  of  the  first  dividend  to  the  filing-  of  such  bill,  and 
the  other  creditors  had  not  been  harmed  by  complainant's  temporary 
submission  to  the  ruling- of  the  comptroller  of  the  currency  requiring- 
complainant  to  first  exhaust  the  collaterals  securing  its  debt,  and 
then  to  prove  for  the  balance  due,  after  applying-  the  proceeds  of  the 
collaterals  in  part  payment;  and  the  decree  under  such  ruling  affected 
only  assets  on  hand,  or  such  as  might  be  subsequently  discovered. 
Held,  that  the  lapse  of  time  was  not  such  as  to  raise  any  presump- 
tion of  laches,  nor  was  complainant  estopped  to  urge  the  invalidity 
of  such  ruling. 

Same— Same— Secured  Creditors — Bankruptcy  Rule.* — A  secured 
creditor  of  an  insolvent  national  bank  may  prove  and  receive  divi- 
dends upon  the  face  of  his  claim  as  it  stood  at  the  time  of  the  declara- 
tion of  insolvency,  without  crediting  either  his  collaterals,  or  collec- 
tions made  therefrom  after  such  declaration,  subject  only  to  the  pro- 
viso that  dividends  must  cease  when  from  them  and  from  collaterals 
realized,  the  claim  has  been  paid  in  full,  the  legislation  in  respect 
to  the  administration  of  national  banks  not  requiring  the  applica- 
tion of  the  bankruptcy  rule  in  such  cases. 

Mr.  Justice  White,  Mr.  Justice  Harlan,  Mr. 
Justice  McKenna,  and  Mr.  Justice  Gray  dissent- 
ing-. 

Appeal  by  receiver  from  the  Circuit  Court  of  Ap- 
peals of  the  United  States  for  the  Fifth  Circuit. 
A^rmcd. 

On  the  17th  day  of  July,  A.  D.  1891,  the  First 
National   Bank  of  Palatka,  Fla.,  a  banking  association 

*See  Citizens'  Bank  of  Mound  City  et  al.  v.  State  ex  rel.  Attorney 
General  et  al.  (Kan.),  ante,  p.  85  and  notes,  p.  88. 


212  INSOIyVENCY  [vol  I 

Merrill  v.  National  Bank  of  Jacksonville 

incorporated  under  the  laws  of  the  United  States, 
having- its  place  of  business  at  Palatka,  Fla., 
failed,  and  closed  its  doors.  Subsequently, 
T.  B.  Merrill  was  duly  appointed  receiver  of  the  bank 
by  the  comptroller  of  the  currency,  and  entered  upon 
the  discharg-e  of  his  duties.  At  the  time  of  the  failure 
of  the  bank,  it  was  indebted  to  the  National  Bank  of 
Jacksonville  in  the  sum  of  $6,010.47,  on  sundry  drafts, 
which  indebtedness  was  unsecured,  and  also  in  the 
sum  of  $10,093.34,  being-  $10,000,  and  interest,  for 
money  borrowed  June  5,  1891,  evidenced  by  a  certifi- 
cate of  deposit,  which  was  secured  by  sundry  notes 
belong-ing-  to  the  First  National  Bank  of  Palatka, 
attached  to  the  certificate  as  collateral.  These  notes 
ag-greg-ated  $10,896.22,  the  larg-est  being-  a  note  of  A. 
L.  Hart  for  $5,350.22.  The  National  Bank  of  Jackson- 
ville proved  its  claim  upon  the  unsecured  drafts  for 
$6,010.47,  and  as  to  this  there  was  no  controversy. 
It  also  offered  to  prove  its  claim  for  $10,093.34,  but 
the  receiver  would  not  permit  it  to  do  this  ;  and,  under 
the  ruling-  of  the  comptroller  of  the  currency,  it  was 
ordered  first  to  exhaust  the  collaterals  g-iven  to  secure 
the  certificate  of  deposit,  and  then  to  prove  for  the 
balance  due,  after  applying-  the  proceeds  of  the  collat- 
erals in  part  payment. 

The  Jacksonville  Bank  collected  all  the  notes,  ex- 
cepting- that  of  A.  Iv.  Hart,  obtained  a  judg-ment  on 
the  latter,  which  it  assig-ned  and  transferred  to  the 
receiver,  applied  the  proceeds  of  the  collaterals  which 
it  had  collected  to  its  claim  on  the  certificate,  and 
proved  for  the  balance  due  thereon,  being-  the  sum  of 
$4,496.44.  On  December  1,  1892,  a  dividend  of  $1, 
573.75  was  paid  on  the  claim  as  thus  proven  ;  and  on 
May  17,  1893,  a  second  dividend  of  $449.64  was  paid. 

On  the  11th  of  September,  1894,  the  Jacksonville 
Bank  filed  its  bill  of  complaint  in  the  circuit  court  of  the 
United  States  for  the  Southern  district  of  Florida 
ag-ainst  Merrill,  as  a  receiver,  which  set  forth  the 
foreg-oing-  facts,  complained  of  the  action  of  the  receiver 
in    not  permitting-    proof   for  the    full    amount  of  the 


B  CAS]  INSOLVENCY  213 

Merrill  v.  National  Bank  of  Jacksonville 

certificate  of  deposit,  and  alleg-ed  that  it  "g-ave  due 
notice  that  it  would  demand  a  p?-o  rata  dividend  upon 
the  whole  amount  due  your  orator,  without  deducting 
the  amount  collected  on  collateral  security,  to  wit,  that 
it  would  demand  a/ro  rata  dividend  upon  $16,103.81, 
and  interest  thereon  from  the  17th  day  of  July,  A.  D. 
1891." 

The  prayer  of  the  bill  was,  among-  other  things,  for 
a.^ro  rata  distribution  on  the  entire  amount  of  the 
indebtedness. 

The  defendant  demurred  to  the  bill,  and  the  demur- 
rer having-  been  overruled,  answered,  denying-  "that 
the  complainant  g-ave  due  notice  that  it  would  demand 
2i  fro  rata  dividend  upon  the  whole  amount  due  to  it 
without  deducting  the  amount  collected  on  collateral 
security,"  and  averring,  to  the  contrary, that  "the  com- 
plainant accepted  the  said  ruling  of  the  said  comptroller 
without  demurrer, and  accepted  from  the  said  comptrol- 
ler through  this  defendant,  without  protesting  notice  of 
any  kind,  the  checks  of  the  said  comptroller  in  payment 
of  the  dividends  mentioned  in  the  bill,  and  that  it  was 
not  until  the  15th  of  March,  1894,  that  the  complainant 
gave  notice  of  any  kind  that  it  dissented  from  the  said 
ruling  of  the  comptroller,  and  would  demand  payment 
upon  a  diiferent  basis." 

Sundry  exceptions  were  taken  to  the  answer,  which 
were  overruled,  and  the  cause  was  set  down  for  final 
hearing  on  bill  and  answer. 

The  circuit  court  entered  its  decree  January  29,  1896, 
that  complainant  was  entitled  to  receive  dividends  on 
the  whole  face  of  the  indebtedness  due  July  17,  1891, 
less  the  dividends  actually  paid  to  it  ;  that  the  receiver 
declare  the  dividend  on  the  basis  of  the  whole  claim, 
and  pay  it  out  of  any  assets  which  were  in  his  hands 
March  15,  1894  ;  and  that  he  render  an  account. 

From  this  decree  the  receiver  prosecuted  an  appeal 
to  the  circuit  court  of  appeals  for  the  Fifth  circuit. 
That  court,  differing  from  the  circuit  court  as  to  the 
form  of  its  decree,  reversed  it,  and  remanded  the  cause, 
with  directions  to   enter  a  decree  that  the  Jacksonville 


214  INSOLVENCY  [VOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

Bank  was  entitled  to  prove  its  claims  to  the  entire 
amount  of  the  indebtedness,  and  to  the  payment  there- 
on of  the  same  dividends  as  had  been  paid  on  other 
indebtedness  of  the  Palatka  Bank,  with  interest  on 
such  dividends  from  the  date  of  the  declaration  thereof, 
less  a  credit  of  the  sums  which  had  been  paid  as  divi- 
dends on  the  part  of  the  claim  theretofore  allowed, 
provided  the  dividends  theretofore  paid  and  thereafter 
to  be  paid  on  the  sum  of  $10,093.34,  tog-ether  with  the 
amounts  theretofore  and  thereafter  received  on  the 
collaterals  securing-  that  indebtedness,  should  not 
exceed  100  cents  on  the  dollar  of  the  principal  and 
interest  of  said  debt ;  that  the  receiver  recognizes  the 
Jacksonville  Bank  as  creditor  of  the  Palatka  Bank  in 
said  sum  of  $10,093.34  as  of  July  17,  1891,  and  pay 
dividends  as  aforesaid  thereon,  or  certify  the  same  to 
the  comptroller  of  the  currency,  to  be  paid  in  due 
course  of  administration  ;  and  that  the  Jacksonville 
Bank  receive,  before  further  payment  to  other  creditors, 
its  due  proportion  of  the  dividends  as  thus  declared, 
with  interest.  41  U.  S.  App.  529,  21  C.  C.  A.  282, 
and  75  Fed.  148.  From  that  decree,  after  the  mandate 
of  the  circuit  court  of  appeals  had  been  sent  down  to 
the  circuit  court,  and  proceeding's  had  thereunder,  an 
appeal  was  taken  and  perfected  to  this  court,  and  is 
numbered  54  of  this  term. 

The  decree  was  entered  by  the  circuit  court  in 
pursuance  of  the  mandate  of  the  circuit  court  of  appeals, 
July  27,  1896  ;  and  the  receiver  prayed  an  appeal  there- 
from to  the  circuit  court  of  appeals,  w^hich  was  by 
that  court  dismissed,  on  motion  of  the  Jacksonville 
Bank.  41  U.  S.  App,  645,  24  C.  C.  A.  63,  and  78 
Fed.  208.  From  this  decree  of  dismissal,  an  appeal 
was  allowed  and  perfected  to  this  court,  and  is  num- 
bered 55  of  this  term. 

These  appeals  were  argued  together. 

Edzvard  Wiiisloxv  Paige  and  F.  F.  Oldliuin,  for' 
appellant. 

J.  C.  Cooper,  Wm.  Worthington^  and  Geo.  H. 
Teainans,  for  appellee. 


B  CAS]  INSOLVENCY  215 

Merrill  v.  National  Bank  of  Jacksonville 

Mr  Chief  Justice  Fuller,  after  stating-  the  facts 
in  the  foreg-oing-  lang-uag-e,  delivered  the  opinion  of  the 
court. 

The  circuit  court  of  appeals  reversed  the  decree  of  the 
circuit  court  with  specific  directions.  Nothing  remained 
for  the  circuit  court  to  do  except  to  enter  a  decree  in 
accordance  with  the  mandate  ;  and,  for  the  ^  ^^ 
purposes  of  an  appeal  to  this  court,  the 
decree  of  the  circuit  court  of  appeals  was  final.  The 
mandate  went  down,  and  the  circuit  court  entered 
its  decree  in  strict  conformity  therewith  before  the 
appeal  in  No.  54  was  prosecuted  to  this  court.  This 
promptness  of  action  did  not,  however,  cut  off  that 
appeal,  and  any  difficulty  in  our  dealing-  with  the  cause 
in  the  circuit  court  was  obviated  by  the  second  appeal, 
which  bring-s  before  us,  in  No.  55,  the  record  subse- 
quent to  the  first  decree  of  the  circuit   court  of  appeals. 

It  is  contended  that   the   bill   should  have  been  dis- 
missed because  of  adequate  remedy  at  law,  and  on  the 
ground  of   laches  and   estoppel.       As  the  controversy 
involved  the  question  on  what  basis  dividends 
should  have  been   declared,  and  therein   the  insfliveut \>iionai 
enforcement   or   the   administration    oi    the  Equity jurisdictiou. 
trust  in  accordance   with    law,  we  have  no 
doubt  of  the  jurisdiction  in  equity 

Nor  was  the  lapse  of  time  such  as  to  raise  any  pre- 
sumption of  laches,  nor  could  an  estoppel  properly  be 
held  to  have  arisen.  Less  than  two  years  had  elapsed 
from  the  payment  of  the  fir,st dividend  to  the 
filing-  of  the  bill,  and  the  other  creditors  of  u™,*e7iT8Wi- 
the  insolvent  bank  had  not  been  harmed  by 
the  temporary  submission  of  complainant  to  the  ruling- 
of  the  comptroller.  The  decree  affected  only  assets  on 
hand  or  such  as  mig-ht  be  subsequently  discovered  ; 
and,  if  the  other  creditors  had  no  rigfhts  superior  to 
that  of  complainant,  they  lost  nothing-  by  the  reduction 
of  their  dividends,  if  any  afterwards  declared  to  be  paid 
out  of  such  assets. 

The  inquir}^  on  the  merits  is,  g-enerally  speaking-, 
whether  a  secured  creditor  of  an  insolvent  national  bank 


1 


216  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

may  prove  and  receive  dividends  upon  the  face  of  his 
claim  as  it  stood  at  the  time  of  the  declaration  of  insol- 
venc3%  without  crediting-  either  his  collaterals,  or  col- 
lections made  therefrom  after  such  declaration,  sub- 
ject always  to  the  proviso  that  dividends  must  cease 
when,  from  them  and  from  collaterals  realized,  the 
claim  has  been  paid  in  full. 

Counsel  agree  that  four  different  rules  have  been 
applied  in  the  distribution  of  insolvent  estates,  and  state 
them  as  follows: 

"Rulel.  The  creditor  desiring-  to  participate -in 
the  fund  is  required  first  to  exhaust  his  security,  and 
credit  the  proceeds  on  his  claim,  or  to  credit  its  value 
upon  his  claim,  and  prove  for  the  balance,  it  being- 
optional  with  him  to  surrender  his  security  and  prove 
for    his  full  claim. 

"Rule  2.  The  creditor  can  prove  for  the  full  amount, 
but  shall  receive  dividends  only  on  the  amount  due  him 
at  the  time  of  distribution  of  the  fund;  that  is,  he  is  re- 
quired to  credit  on  his  claim,  as  proved,  all  sums 
received  from  his  security,  and  may  receive  dividends 
only  on  the  balance  due  him. 

"Rule  3.  The  creditor  shall  be  allowed  to  prove  for, 
and  receive  dividends  upon,  the  amount  due  him  at  the 
time  of  proving-  or  sending-  in  his  claim  to  the  official 
liquidator,  being-  required  to  credit  as  payments  all  the 
sums  received  from  his  security  prior  thereto. 

"Rule  4.  The  creditor  can  prove  for,  and  receive 
dividends  upon,  the  full  amount  of  his  claim,  reg-ardless 
of  anv  sums  received  from  his  collateral  after  the  trans- 
fer of  the  assets  from  the  debtor  in  insolvency,  provided 
that  he  shall  not  receive  more  than  the  full  amount  due 
him." 

The  circuit  court  and  the  circuit  court  of  appeals 
held  the  fourth  rule  applicable,  and  decreed  accord- 
ingiy. 

This  was  in  accordance  with  the  decision  of  the  cir- 
cuit court  of  appeals  for  the  Sixth  circuit,  in  Bank  v. 
Armstrong-,  16  U.  S.  App.  465,  8  C.  C.  A.  155,  and  59 
Fed.  372,    Mr.  Justice  Brown,  and  Circuit  Judg-es 


B  CAS]  INSOLVENCY  217 

Merrill  z'.  National  Bank  of  Jacksonville 

TaFT  and  LuRTON,  composing-  the  court.  The  opinion 
was  delivered  by  Judge  Taft  and  discusses  the  ques- 
tion on  principle  with  a  full  citation  of  the  authorities. 
We  concur  with  that  court  in  the  proposition  that 
assets  of  an  insolvent  debtor  are  held  under  insolvency 
proceeding-s  in  trust  for  the  benefit  of  all  his  creditors, 
and  that  a  creditor,  on  proof  of  his  claim,  acquires  a 
vested  interest  in  the  trust  fund  ;  and,  this  being  so, 
that  the  second  rule  before  mentioned  must  be  rejected, 
as  it  is  based  on  the  denial,  in  effect,  of  a  vested  interest 
in  the  trust  fund,  and  concedes  to  the  creditor  simply  a 
rig-ht  to  share  in  the  distributions  made  from  that  fund 
according*  to  the  amount  which  may  then  be  due  him, 
requiring-  a  readjustment  of  the  basis  of  distribution  at 
the  time  of  declaring-  every  dividend,  and  treating', 
erroneously  as  we  think,  the  claim  of  the  creditor  to 
share  in  the  assets  of  the  debtor,  and  his  debt  agfainst 
the  debtor,  as  if  they  were  one  and  the  same  thing". 

The  third  and  fourth  rules  concur  in  holding- that  the 
creditor's  rig-ht  to  dividends  is  to  be  determined  Vjy  the 
amount  due  him  at  the  time  his  interest  in  the  assets 
becomes  vested, and  is  not  subject  to  subsequent  chang-e, 
but  the}"  differ  as  to  the  point  of  time  when  this  occurs. 

In  Kellock's  Case,  L.  R.  3  Ch.  769,  it  was  held  that 
the  creditor's  interest  in  the  g-eneral  fund  to  be  distrib- 
uted vested  at  the  date  of  presenting-  or  proving-  his 
claim  ;  and  this  rule  has  been  followed  in  many  juris- 
dictions where  statutory  provisions  have  been  construed 
to  require  an  affirmative  election  to  become  a  benefici- 
ary thereunder.  For  instance,  the  cases  in  Illinois  con- 
struing- the  assig-nment  act  of  the  state,  which  are  well 
considered  and  full  to  the  point,  hold  that  the  interest 
of  each  creditor  in  the  assig-ned  estate  "onlj'  vests  in 
him  when  he  sig-nifies  his  assent  to  the  assig-nment  by 
filing-  his  claim  with  the  assig-uee."  Lev}"  v.  Bank, 
158  111.  88,  42  N.  E.  129  ;  Furness  r.  Bank,  147  111. 
570,  35  N.  E.  624. 

On  the  other  hand,  the  supreme  court  of  Pennsylva- 
nia, in  Miller's  Appeal,  35  Pa.  St.  481,  and  many  sub- 
sequent cases,  has  held,  necessarily  in  view  of  the  stat- 


218  INSOLVENCY  [vol  I 

Merrill  v.  National  Bank  of  Jacksonville 

utes  of  Pennsylvania  regulating-  the  matter,  that  the 
interest  vests  at  the  time  of  the  transfer  of  the  assets 
in  trust.  In  that  case  the  debtor  executed  a  g-eneral 
assignment  for  the  benefit  of  creditors.  Subsequently, 
the  assignor  became  entitled  to  a  legacy  which  was  at- 
tached by  a  creditor,  who  realized  therefrom  S2,402.87. 
It  was  held  that  such  creditor  was,  notwithstanding, 
entitled  to  a  dividend  out  of  the  assigned  estate  on  the 
full  amount  of  his  claim  at  the  time  of  the  execution  of 
the  assignment.  Mr.  Justice  Strong,  then  a  mem- 
ber of  the  state  tribunal,  said  :  ''By  the  deed  of  assign- 
ment, the  equitable  ownership  of  all  the  assigned  prop- 
erty passed  to  the  creditors.  They  became  joint  pro- 
prietors, and  each  creditor  owned  such  a  proportional 
part  of  the  whole  as  the  debt  due  to  him  was  of  the 
aggregate  of  the  debts.  The  extent  of  his  interest  was 
fixed  by  the  deed  of  trust.  It  was,  indeed,  only  equi- 
table; but,  whatever  it  was,  he  took  it  under  the  deed, 
and  it  was  only  as  a  part  owner  that  he  had  any  stand- 
ing in  court  when  the  distribution  came  to  be  made. 
*  *  ^  It  amounts  to  very  little  to  argue  that  Miller's 
recovery  of  the  52,402.87  operated  with  precisely  the 
same  effect  as  if  a  voluntary  payment  had  been  made 
bv  the  assignor  after  his  assignment ;  that  is,  that  it 
extinguished  the  debt  to  the  amount  recovered.  No 
doubt  it  did,  but  it  is  not  as  a  creditor  that  he  is  entitled 
to  a  distributive  share  of  the  trust  fund.  His  rights 
are  those  of  an  owner  by  virtue  of  the  deed  of  assign- 
ment. The  amount  of  the  debt  due  to  him  is  important 
only  so  far  as  it  determines  the  extent  of  his  ownership. 
The  reduction  of  that  debt,  therefore,  after  the  creation 
of  the  trust,  and  after  his  ownership  had  become  vested, 
it  would  seem,  must  be  immaterial." 

Differences  in  the  language  of  voluntar}^  assignments 
and  of  statutory  provisions  naturally  lead  to  particular 
differences  in  decision,  but  the  principle  on  which  the 
third  and  fourth  rules  rest  is  the  same.  In  other  words, 
those  rules  hold,  together  with  the  first  rule,  that  the 
creditor's  right  to  dividends  is  based  on  the  amount  of  his 
claims  at  the  time  his  interest  in   the  assets  vests  by 


B  CAS]  INSOLVENCY  219 

Merrill  v.  National  Bank  of  Jacksonville 

the  statute,  or  deed  of  trust, or  rule  of  law,  under  which 
thev  are  to  be  administered. 

The  first  rule  is  commonh'  known  as  the  "bankruptcy 
rule,"  because  enforced  by  the  bankruptcy  courts  in 
the  exercise  of  their  peculiar  jurisdiction,  under  the 
bankruptcy  acts,  over  the  propert}"  of  the  bankrupt,  in 
virtue  of  which  creditors  holding-  mortg-ag-es  or  liens 
thereon  mig-ht  be  required  to  realize  on  theiv  securities, 
to  permit  them  to  be  sold,  to  take  them  on  valuation, 
or  to  surrender  them  altogether,  as  a  condition  of  prov- 
ing" against  the  gfeneral  assets. 

The  fourth  rule  is  that  ordinarily  laid  down  b}^  the 
chancery  courts,  to  the  effect  that,  as  the  trust  created 
by  the  transfer  of  the  assets  by  operation  of  law  or 
otherwise  is  a  trust  for  all  creditors,  no  creditor  can 
equitably  be  compelled  to  surrender  any  other  vested 
rig"ht  he  has  in  the  assets  of  his  debtor  in  order  to  ob- 
tain his  vested  right  under  the  trust.  It  is  true  that, 
in  equity,  a  creditor  having  a  lien  upon  two  funds  may 
be  required  to  exhaust  one  of  them  in  aid  of  creditors 
who  can  only  resort  to  the  other  ;  but  this  will  not  be 
done  v^'hen  it  trenches  on  the  rights  or  operates  to  the 
prejudice  of  the  part}'  entitled  to  the  double  fund. 
Storv,  Eq.  Jur.  (13th  Ed.)  §  633  ;  In  re  Bates,  118  111. 
524,  9  N.  E.  257.  And  it  is  well  established  that  in 
marshaling  assets,  as  respects  creditors,  no  part  of  his 
security  can  be  taken  from  a  secured  creditor  until  he 
is  completely  satisfied.  2  White  &  T.  Lead.  Cas.  Eq. 
(4th  Am.  Ed.)  pt.  1,  pp.  258,  322. 

In  Greenwood  v.  Taylor,  1  Russ.  &  M.  185, Sir  John 
Leach  applied  the  bankruptcy  rule  in  the  administra- 
tion of  a  decedent's  estate,  and  remarked  that  the  rule 
was  "not  founded,  as  has  been  argued,  upon  the  pecu- 
liar jurisdiction  in  bankruptcy,  but  rests  upon  the  gen- 
eral principles  of  acourt  of  equity  in  the  administration 
of  assets,"  and  referred  to  the  doctrine  requiring  a  cred- 
itor having  two  funds  as  security,  one  of  which  he  shares 
with  others,  to  resort  to  his  sole  security  first.  But 
Greenwood  v.  Taylor  was, in  effect,  overruled  by  Lord 
CoTTENHAM  in  Mason  v.  Bogg,  2  Mylne  &  C.  443,  448, 


220  INSOLVENCY  [vOL  I 

Merrill  z'.  National  Bank  of  Jacksonville 

and  expressly  so  by  the  court  of  appeal  in  chancery  in 
Kellock's  Case  ;  and  the  application  of  the  bankruptcy 
rule  rejected. 

In  Kellock's  Case,  Lord  Justice  W.  Page  Wood 
(soon  afterwards  Lord  Chancellor  HATHERLY)said: 

"Now,  in  the  case  of  proceeding's  with  reference  to 
the  administration  of  the  estates  of  deceased  persons. 
Lord  CoTTENHAMput  the  point  very  clearly  and  said  : 
'A  mortg-ag-ee  has  a  double  security.  He  has  a  rig-ht 
to  proceed  ag-ainst  both,  and  to  make  the  best  he  can  of 
both.  Why  he  should  be  deprived  of  this  rig-ht  because 
the  debtor  dies,  and  dies  insolvent,  it  is  not  ver}'  easy 
to  see.' 

"Mr.  De  Gex,  who  argfued  this  case,  very  ably,  says 
that  the  whole  case  is  altered  by  the  insolvenc}^  But 
where  do  we  find  such  a  rule  established,  and  on  what 
principle  can  such  a  rule  be  founded,  as  that,  where  a 
mortg-ag-or  is  insolvent,  the  contract  between  him  and 
his  mortg-ag-ee  is  to  be  treated  as  altered  in  a  way 
prejudicial  to  the  mortgfag-ee,  and  that  the  mortg-ag^ee 
is  bound  to  realize  his  security  before  proceeding-  with 
his  personal  demand  ? 

"It  was  strong-ly  pressed  upon  us,  and  the  arg-ument 
succeeded  before  Sir  J.  Leach  in  Greenwood  v.  Taylor, 
that  the  practice  in  bankruptcy  furnishes  a  precedent 
which  oug-ht  to  be  followed.  But  the  answer  to  that 
is  that  this  court  is  not  to  depart  from  its  own  estab- 
lished practice,  and  vary  the  nature  of  the  contract 
between  mortg-ag-or  and  mortg-ag-ee  by  analog-y  to  a  rule 
which  has  been  adopted  by  a  court  having-  a  peculiar 
jurisdiction,  established  for  administering-  the  propert}^ 
of  traders  unable  to  meet  their  eng-ag-ements,  which 
property  that  court  found  it  proper  and  rig-ht  to  distrib- 
ute in  a  particular  manner,  different  from  the  mode  in 
which  it  would  have  been  dealt  with  in  the  court  of 
chancery.  *  *  -  We  are  asked  to  alter  the  contract 
between  the  parties  by  depriving-  the  secured  creditor 
of  one  of  his  remedies,  namely,  the  rig-ht  of  standing- 
upon  his  securities  until  they  are  redeemed." 

And  it  was  the  established  rule  in  Kng-land  prior  to 


B  CAS]  INSOLVENCY  221 

Merrill  v.  National  Bank  of  Jacksonville 

the  judicature  act  (38  &  39  Vict,  c.  77)  that  in  an 
administration  suit  a  mortgagee  might  prove  his  whole 
debt,  and  afterwards  realize  his  securit}^  for  the 
difference  ;  and  so  as  to  creditors  with  security,  where 
a  company  was  being  wound  up  under  the  companies 
act  of  1862.  1  Daniell,  Ch.  Prac.  384  ;  7;^  re  Brick 
Works,  Ch.  Div.  337. 

Certainly,  the  giving  of  collateral  does  not  operate  of 
itself  as  a  payment  or  satisfaction  either  of  the  debt  or 
any  part  of  it,  and  the  debtor,  who  has  given  collateral 
security,  remains  debtor,  notwithstanding,  to  the  full 
amount  of  the  debt  ;  and  so  in  Lewis  v.  U.  S.,  92  U.  S. 
623,  it  was  ruled  that  "it  is  a  settled  principle  of  equity 
that  a  creditor  holding  collaterals  is  not  bound  to  apph^ 
them  before  enforcing  his  direct  remedies  against  the 
debtor." 

Doubtless,  the  title  to  collaterals  pledged  for  the 
security  of  a  debt  vests  in  the  pledgee  so  far  as  neces- 
sary to  accomplish  that  purpose,  but  the  obligation  to 
which  the  collaterals  are  subsidiary  remains  the  same. 
The  creditor  can  sue,  recover  judgment,  and  collect 
from  the  debtor's  general  property,  and  apply  the 
proceeds  of  the  collateral  to  any  balance  which  may 
remain.  Insolvency  proceedings  shift  the  creditor's 
remedy  to  the  interest  in  the  assets.  As  between 
debtor  and  creditor,  moneys  received  on  collaterals  are 
applicable  by  way  of  payment ;  but  as,  under  the  equity 
rule,  the  creditor's  rights  in  the  trust  fund  are  estab- 
lished when  the  fund  is  created,  collections  subsequently 
made  from,  or  payments  subsequently  made  on,  collat- 
eral, cannot  operate  to  change  the  relations  between  the 
creditor  and  his  co-creditors  in  respect  of  their  rights 
in  the  fund. 

As  Judge  Taft  points  out,  it  is  because  of  the 
distinction  between  the  right  in  ficrsonam  and  the  right 
in  rem  that  interest  is  onl}^  added  up  to  the  date  of 
insolvency,  although,  after  the  claims  as  allowed  are 
paid  in  full,  interest  accruing  may  then  be  paid  before 
distribution  to  stockholders. 

In  short,    the  secured    creditor  is    not  to    be  cut   off 


222  INSOLVENCY  [VOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

from  his  rig-ht  in  the  common  fund  because  he  has 
taken  security  which  his  co-creditors  have  not.  Of 
course,  he  cannot  ofo  beyend  payment,  and  surplus 
assets  or  so  much  of  his  dividends  as  are  unnecessary 
to  pay  him  must  be  applied  to  the  benefit  of  the  other 
creditors  ;  and,  while  the  unsecured  creditors  are 
entitled  to  be  substituted  as  far  as  possible  to  the  rig-hts 
of  secured  creditors,  the  latter  are  entitled  to  retain 
their  securities  until  the  indebtedness  due  them  is 
extincruished. 

The  contractual  relations  between  borrower  and 
lender,  pledging-  collaterals,  remain,  as  is  said  by  the 
New  York  court  of  appeals  in  People  v.  Remington, 
121  N.  Y.  328,  24  N.  E.  793,  "unchang-ed,  although 
insolvency  has  broug^htthe  general  estate  of  the  debtor 
withiu  the  jurisdiction  of  a  court  of  equity  for  adminis- 
tration and  settlement."  The  creditor  looks  to  the 
debtor  to  repay  the  money  borrowed,  and  to  the 
collateral  to  accomplish  this  in  whole  or  in  part ;  and 
he  cannot  be  deprived  either  of  what  his  debtor's 
g-eneral  ability  to  pay  may  yield,  or  of  the  particular 
security  he  has  taken." 

We  cannot  concur  in  the  view  expressed  by  Chief 
Justice  Parker  in  Amory  v.  Francis  (1820)  16  Mass. 
308,  that  "the  property  pledg-ed  is  in  fact  security  for 
no  more  of  the  debt  than  its  value  will  amount  to,  and 
for  all  the  rest  the  creditor  relies  upon  the  personal 
credit  of  his  debtor,  in  the  same  manner  he  would  for 
the  whole  if  no  securit}"  were  taken." 

We  think  the  collateral  is  security  for  the  whole 
debt  and  ever}^  part  of  it,  and  is  as  applicable  to  any 
balance  that  remains  after  payment  from  other  sources 
as  to  the  orig-inal  amount  due,  and  that  the  assumption 
is  unreasonable  that  the  creditor  does  not  rely  on  the 
responsibility  of  his  debtor  according"  to   his  promise. 

The  ruling  in  Amory  :■.  Francis  was  disapproved, 
shortlv  after  it  was  made,  by  the  supreme  court  of  New 
Hampshire,  in  Moses  v.  Ranlet  (1822)  2  N.  H.  488, 
Woodbury,  J.  (afterwards  Mr.  Justice  Woodbury, 
of  this  court; ,  delivering-  the    opinion,    and    is  rejected 


B  CAS]  INSOLVENCY  223 

Merrill  v.  National  Bank  of  Jacksonville 

by  the  preponderance  of  decisions  in  this  countr}^  which 
sustain  this  conclusion  that  a  creditor,  with  collateral, 
is  not  on  that  account  to  be  deprived  of  thexig^ht  to 
prove  for  his  full  claim  ag-ainst  an  insolvent  estate. 
Many  of  the  cases  are  referred  to  in  Bank  r.  Arm- 
strong-, and  these  and  others  g-iven  in  3  Am.  &  Eng-. 
Enc.  Law  (2d  Ed.)  p.  141. 

Does  the  leg^islation  in  respect  to  the  administration 
of  national  banks  require  the  application  of  the  bank- 
ruptcy rule?  If  not,  we  are  of  opinion  that  the  equity 
rule  was  properly  applied  in  this  case. 

By  section  5234  of  the  Revised  Statutes,  and  section  1 
of  the  act  of  June  30,  1876  (19  Stat.  63,  c.  156),  the 
comptroller  of  the  currency  is  authorized  to  appoint  a 
receiver  to  close  up  the  affairs  of  a  national  banking- 
association  when  it  has  failed  to  redeem  its  circulation 
notes,  when  presented  for  payment:  or  has  been  dis- 
solved, and  its  charter  forfeited;  or  has  allowed  a  judg*- 
meut  to  remain  ag-ainst  it  unpaid  for  30  da3^s;  or  when- 
ever the  comptroller  shall  have  become  satisfied  of  its 
insolvency  after  examining-  its  affairs.  Such  receiver 
is  to  take  possession  of  its  effects,  liquidate  its  assets, 
and  pa}'  the  money  derived  therefrom  to  the  treasurer 
of  the  United  States. 

Section  5235  of  the  Revised  Statutes  requires  the 
comptroller,  after  appointing-  such  receiver,  to  g-ive 
notice  by  newspaper  advertisement  for  three  consecutive 
months,  "calling-  on  all  persons  who  ma}'  have  claims 
against  such  association  to  present  the  same,  and  to 
make  legal  proof  thereof." 

By  section  5242,  transfers  of  its  property  b}- a  national 
banking  association  after  the  commission  of  an  act  of 
insolvency,  or  in  contemplation  thereof,  to  prevent 
distribution  of  its  assets  in  the  manner  provided  by  the 
chapter  of  which  that  section  forms  a  part,  or  with  a 
view  to  preferring  any  creditor  except  in  pavment  of 
its  circulating  notes,  are  declared  to  be  null    and  void. 

Section  5236  is  as  follows: 

"From  time  to  time,  after  full  provision  has  first 
been  made  for  refunding-  to  the  United  States  any  defi- 


224  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

ciency  in  redeemino'  the  notes  of  such  association,  the 
comptroller  shall  make  a  ratable  dividend  of  the  money 
so  paid  over  to  him  by  such  receiver  on  all  such  claims 
as  may  have  been  proved  to  his  satisfaction,  or  adjudi- 
cated in  a  court  of  competent  jurisdiction,  and,  as  the 
proceeds  of  the  assets  of  such  association  are  paid  over 
to  him,  shall  make  further  dividends  on  all  claims  pre- 
viouly  proved  or  adjudicated;  and  the  remainder  of  the 
proceeds,  if  any,  shall  be  paid  over  to  the  shareholders 
of  such  association,  or  their  legal  representatives,  in 
proportion  to  the  stock  by  them  respectively  held." 

In  Cook  County  Nat.  Bank  i'.  U.  S.,  107  U.  S.  445, 
2  Sup.  Ct.,  561,  it  was  ruled  that  the  statute  furnishes 
a  complete  code  for  the  distribution  of  the  effects  of 
an  insolvent  national  bank  ;  that  its  provisions  are  not 
to  be  departed  from  ;  and  that  the  bankrupt  law  does 
not  g-overn  distribution  thereunder.  The  question 
now  before  us  was  not  treated  as  involved,  and  was 
not  decided,  but  the  case  is  in  harmony  with  Bank  v. 
Colby,  21  Wall.  609,  and  Scott  v.  Armstrong-,  146  U. 
S.  499,  13  Sup.  Ct.  148,  which  proceed  on  the  view 
that  all  rig-hts,  leg^al  or  equitable,  existing-  at  the  time 
of  the  commission  of  the  act  of  insolvency  which  led 
to  the  appointment  of  the  receiver,  other  than  those 
created  by  preference  forbidden  by  section  5242,  are 
preserved,  and  that  no  additional  rig-ht  can  thereafter 
be  created,  either  by  voluntary  or  involuntar}'  pro- 
ceedings. The  distribution  is  to  be  "ratable"  on  the 
claims  as  proved  or  adjudicated  ;  that  is,  on  one  rule 
of  proportion  applicable  to  all  alike.  In  order  to  be 
"ratable,"  the  claims  must  manifesth''  be  estimated  as 
of  the  same  point  of  time,  and  that  date  has  been  ad- 
judged to  be  the  date  of  the  declaration  of  insolvencv. 
White  V.  Knox,  111  U.  S.  784,  4  Sup.  Ct.  686.  In 
that  case  it  appeared  that  the  Miners'  National  Bank 
had  been  put  in  the  hands  of  a  receiver  b}^  the 
comptroller  of  the  currency,  December  20,  1875. 
White  presented  a  claim  for  860,000,  which  the 
comptroller  refused  to  allow.  White  then  brought 
suit  to  have    his  claim  adjudicated,    and    on  June  23, 


B  CAS]  INSOLVENCY  225 

Merrill  v.  National  Bank  of  Jacksonville 

1883,  recovered  judg-ment  for  $104,523.72,  being- 
the  amount  of  his  claim,  with  interest  to  the  date  of 
the  judg-ment.  Meanwhile  the  comptroller  had  paid 
the  other  creditors  ratable  dividends,  ag-g-reg-ating- 
65  per  cent,  of  the  amounts  due  them,  respect- 
ively, as  of  the  date  when  the  bank  failed.  When 
White's  claim  was  adjudicated,  the  comptroller  cal- 
culated the  amount  due  him  according-  to  the  judg-ment 
as  of  the  date  of  the  failure,  and  paid  him  65  per  cent, 
on  that  amount.  White  admitted  that  he  had  received 
all  that  was  due  him  on  the  basis  of  distribution 
assumed  by  the  comptroller,  but  claimed  that  he  was 
entitled  to  have  his  dividends  calculated  on  the  face 
of  the  judg-ment,  which  would  give  him  several 
thousand  dollars  more  than  he  had  received,  and 
he  applied  for  a  viaiidamus  to  compel  the  payment 
to  him  of  the  additional  sum.  The  writ  was  refused 
by  the  c«urt  below,  and  its  judg-ment  was  a£6rmed. 
Mr.  Chief  Justice  Waite,  speaking-  for  the  court, 
said:  "Dividends  are  to  be  paid  to  all  creditors, 
ratably  ;  that  is  to  say,  proportionally.  To  be  pro- 
portionate, they  must  be  made  by  some  uniform  rule. 
They  are  to  be  p^id  on  all  claims  ag-ainst  the  bank 
previously  proved  and  ad  judicated.  All  creditors  are 
to  be  treated  alike.  The  claim  ag-ainst  the  bank, 
therefore,  must  necessarily  be  made  the  basis  of  the 
apportionment.  *  *  "'  The  business  of  the  bank 
must  stop  when  insolvency  is  declared.  Rev.  St.  ii 
5228.  No  new  debt  can  be  made  after  that.  The  only 
claims  the  comptroller  can  recognize  in  the  settlement 
of  the  affairs  of  the  bank  are  those  which  are  shown 
by  proof  satisfactory  to  him,  or  by  the  adjudication  of 
a  competent  court,  to  have  had  their  orig-in  in  something- 
done  before  the  insolvency.  It  is  clearly  his  duty, 
therefore,  in  paying-  dividends,  to  take  the  value  of  the 
claim  at  that  time  as  the  basis  of  distribution." 

In  Scott  V.  Armstrong-,  146  U.  S.  499,  13  Sup.  Ct. 
148,  it  was  arg-ued  that  the  ordinary  equity  rule  of 
set-off  in  case  of  insolvency  did  not  apph^  to  insolvent 
national  banks,  in  view  of  sections  5234,  5236,  and  5242 

B  CAS- -15 


226    '  INSOLVENCY  [vOL  I 

Merrill  z'.  National  Bank  of  Jacksonville 

of  the  Revised  Statutes.  It  was  urg-ed  "that  these 
sections,  by  implication,  forbid  this  set-off,  because 
they  require  that,  after  the  redemption  of  the  circulat- 
ing- notes  has  been  fully  provided  for,  the  assets  shall 
be  ratably  distributed  among-  the  creditors,  and  that  no 
preferences  g-iven  or  suffered,  in  contemplation  of  or 
after  committingf  the  act  of  insolvency,  shall  stand"  ; 
and  "that  the  assets  of  the  bank  existing^  at  the  time 
of  the  act  of  insolvency  include  all  its  property,  with- 
out regard  to  any  existing  liens  thereon  or  set-offs 
thereto."  But  this  court  said  :  '"We  do  not  reg-ard 
this  position  as  tenable.  Undoubtedly,  any  disposition 
by  a  national  bank,  being-  insolvent  or  in  contemplation 
of  insolvenc}',  of  its  choses  in  action,  securities,  or 
other  assets,  made  to  prevent  their  application  to  the 
payment  of  its  circulating-  notes,  or  to  prefer  one  cred- 
itor to  another,  is  forbidden  ;  but  liens,  equities,  or 
rights  arising-  b\'  express  ag-reement,  or  implied  from 
the  nature  of  the  dealingfs  between  the  parties,  or  by 
operation  of  law,  prior  to  insolvenc}^  and  not  in  con- 
templation thereof,  are  not  invalidated.  The  provisions 
of  the  act  are  not  directed  ag-ainst  all  liens,  securities, 
pledges,  or  equities,  whereb}^  one. creditor  may  obtain 
a  g-reater  pa3'ment  that  another,  but  ag-ainst  those  g-iven 
or  arising-  after  or  in  contemplation  of  insolvenc}'. 
Where  a  set-off  is  otherwise  valid,  it  is  not  perceived 
how  its  allowance  can  be  considered  a  preference,  and 
it  is  clear  that  it  is  only  the  balance,  if  any,  after  the 
set-off  is  deducted,  which  can  justly  be  held  to  form 
part  of  the  assets  of  the  insolvent.  The  requirement 
as  to  ratable  dividends  is  to  make  them  from  what 
belongs  to  the  bank,  and  that  which  at  the  time  of  the 
insolvencv  belongfs  of  rig-ht  to  the  debtor  does  not  be- 
long- to  the  bank." 

The  set-off  took  effect  as  of  the  date  of  the  declara- 
tion of  insolvency,  but  outstanding-  collaterals  are  not 
pa3'ment,  and  the  statute  does  not  make  their  surrender 
a  condition  to  the  receipt  by  the  creditor  of  his  share  in 
the  assets. 

The  rule    in    bankruptc}^    went    upon  the    principle 


B  CAS]  INSOLVENCY  227 

Merrill  v.  National  Bank  of  Jacksonville 

of  election;  that  is  to  say,  the  secured  creditor  "was 
not  allowed  to  prove  his  whole  debt,  unless  he  grave 
up  any  security  held  by  him  on  the  estate  ag-ainst  which 
he  soug-ht  to  prove.  He  mitrht  realize  his  security 
himself  if  he  had  power  to  do  so,  or  he  might  apply  to 
have  it  realized  by  the  court  of  bankruptcy,  or  by  some 
other  court  having  competent  jurisdiction,  and  niig-ht 
prove  for  any  deficienc}^  of  the  proceeds  to  satisfy  his 
demand;  but  if  he  neglected  to  do  this,  and  proved  for 
his  whole  debt,  he  was  bound  to  give  up  his  security." 
Rob.  Bankr.  336.  But  it  was  only  under  bankrupt  laws 
that  such  election  could  be  compelled.  Tayloe  v. 
Thompson,  5  Pet.  358,  369. 

And  we  are  unable  to  accept  the  sug-g-estion  that 
compulsion  under  those  laws  was  the  result  merely  of 
the  provision  for  ratable  distribution,  which  only 
operated  to  prevent  preferences,  and  to  make  all  kinds 
of  estates,  both  real  and  personal,  assets  for  the  pay- 
ment of  debts,  and  to  put  specialty  and  simple  contract 
creditors  on  the  same  footing,  and  so  g-ave  to  all  credi- 
tors the  right  to  come  upon  the  common  fund.  Equal- 
ity between  them  was  equity,  but  that  was  not 
inconsistent  with  the  common-law  rule  awarding-  to 
diligence,  prior  to  insolvenc3%its  appropriate  reward,  or 
with  conceding  the  validity  of  prior  contract  rig-hts. 

We  repeat  that  it  appears  to  us  that  the  secured 
creditor  is  a  creditor  to  the  full  amount  due  him  when 
the  insolvency  is  declared,  justas  much  as  theunsecured 
creditor  is,  and  cannot  be  subjected  to  a 
dilTefent  rule.  And,  as  the  basis  on  which  s?"rr7d^i!r?(iinirs 
all  creditors  are  to  draw  dividends  is  the  ^u"*"''''"''''* 
amount  o*f  their  claims  at  the  time  of  the 
declaration  of  insolvency-  it  necessarily  results,  for 
the  purpose  of  fixing  that  basis,  that  it  is  immaterial 
what  collateral  any  particular  creditor  may  have.  The 
secured  creditor*  cannot  be  charged  with  the  esti- 
mated value  of  the  collateral,  or  be  compelled  to  exhaust 
it  before  enforcing"  his  direct  remedies  against  the 
debtor,  or  to  surrender  it  as  a  condition  thereto, 
though  the  receiver  may  redeem  or  be  subrog^ated  as  cir- 
cumstances may  require. 


228  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

Whatever  congress  may  be  authorized  to  enact  by 
reason  of  possessing"  the  power  to  pass  uniform  laws  on 
the  subject  of  bankruptcies,  it  is  very  clear  that  it  did 
not  intend  to  imping-e  upon  contracts  existing-  between 
creditors  and  debtors,  by  anything*  prescribed  in  refer- 
ence to  the  administration  of  the  assets  of  insolvent 
national  banks;  yet  it  is  obvious  that  the  bankruptcy 
rule  confers  what  on  its  face  g^ives  the  secured  creditor 
an  equal  right  with  other  creditors  into  a  preference 
ag"ainst  him,  and  hence  takes  away  a  rig"ht  which  he 
already  had.  This  a  court  of  equity  should  never  do, 
unless  required  by  statute,  at  the  time  the  indebtedness 
was  created. 

The  requirement  of  equality  of  distribution  among- 
creditors  by  the  national  banking*  act  involves  no  in- 
vasion of  prior  contract  rig-hts  of  any  of  such  creditors, 
and  oug"ht  not  to  be  construed  as  having",  or  being-  in- 
tended to  have,  such  a  result. 

Our  conclusion  is  that  the  claims  of  creditors  are  to 
be  determined  as  of  the  date  of  the  declaration  of  insol- 
vency, irrespective  of  the  question  whether  particular 
creditors  have  security  or  not.  When  secured  credit- 
ors have  received  payment  in  full,  their  rig-ht  to  divi- 
dends and  their  rig-ht  to  retain  their  securities  cease, 
but  collections  therefrom  are  not  otherwise  material. 
Insolvency  g-ives  unsecured  creditors  no  g-reater  rig-hts 
than  they  had  before,  though,  throug-h  redemption  or 
subrog-ation  or  the  realization  of  a  surplus,  they  may 
be  benefited. 

The  case  was  rig-htly  decided  b}'  the  circuit  court 
of  appeals.  Its  decree  in  No.  54  is  affirmed  ;  and  the 
decree  of  the  circuit  court,  entered  July  27,  1896,  in 
pursuance  of  the  mandate  of  that  court,  is  also  affirmed. 

Remanded  according-ly. 

Mr.  Justice  White,  dissenting-.. 

The  court  now  decides  :  (1)  That,  on  the  failure  of 
a  national  bank,  a  creditor  thereof,  whose  debt  is  se- 
cured by  pledg-e,  is  entitled  to  be  recog-nized  and 
classed  by  the  comptroller  of  the  currency  to  the  full 
amount  of  his  debt,    without    in  any  way    taking-    into 


B  CAS]  INSOIvVENCY  229 

Merrill  v.  National  Bank  of  Jacksonville 

account  the  collaterals  by  which  the  debt  is  secured, 
and  on  the  amount  so  recog-nized  he  is  entitled  to  be 
paid  out  of  the  general  assets  the  sum  of  any  dividends 
which  may  be  declared.  (2)  That  this  rig-ht  to  be 
classed  for  the  full  amount  of  the  debt,  without  reg"ard 
to  the  value  of  the  collaterals,  is  fixed  b}^  the  date  of 
the  insolvency,  and  continues  to  the  final  distribution, 
whatever  may  be  the  chang-e  in  the  debt  thereafter 
brought  about  by  the  realization  of  the  securities, 
provided  only  that  the  sums  received  by  the  creditor 
by  way  of  dividends  and  from  the  amount  collected 
from  the  collaterals  do  not  exceed  the  entire  debt,  and 
therefore  extinguish  it. 

I  am  constrained  to  dissent  from  these  propositions, 
because,  in  my  opinion,  their  enforcement  will  pro- 
duce inequality  among-  creditors,  and  operate  injustice, 
and,  as  a  necessary  consequence,  are  inconsistent  with 
the  national  banking  act. 

It  cannot  be  doubted  that  the  acts  of  congress,  which 
regulate  the  collection  and  distribution  of  the  assets 
of  an  insolvent  national  bank,  are  controlling.  It  is 
clear  that  every  creditor  who  contracts  with  such  bank 
does  so  subject  to  the  provisions  directing  the  man- 
ner of  distributing  the  assets  of  such  bank  in  case  of 
its  insolvency,  and  therefore  that  the  terms  of  the  act 
enter  into  and  form  part  of  every  contract  which  such 
bank  may  make.  Now,  the  act  of  congress  makes  it 
the  duty  of  the  receiver  appointed  by  the  comptroller 
to  liquidate  the  affairs  of  a  failed  national  bank,  to  take 
possession  of  and  realize  its  assets  (Rev.  St.  §  5234)  ; 
to  call,  by  advertisement  for  90  days,  upon  creditors 
to  present  and  make  legal  proof  of  their  claims  {Id.  § 
5235)  ;  and  from  the  proceeds  of  the  assets  the  comp- 
troller is  directed  to  make  a  "ratable  dividend"  on  the 
recognized  claims  {Id.  §  5236).  To  prevent  preferences, 
the  law,  moreover,  directs  that  all  contracts  from  which 
preferences  may  arise,  made  after  the  commission  of  an 
act  of  insolvency,  or  in  contemplation  thereof,  "shall 
be  utterly  null  and  void."   Id.   §  5242. 

It  seems  to  me  superfluous  to  demonstrate  that   the 


230  INSOLVENCY  [VOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

rules  now  upheld  by  which  a  creditor  holding-  securit}' 
is  decided  to  be  entitled  to  disregard  the  value  of  his 
security,  and  take  a  dividend  upon  the  whole. amount 
of  the  debt  from  the  general  assets,  violates  the  prin- 
ciple of  equality  and  ratable  distribution  which  the  act 
of  congress  establishes.  Is  it  not  evident  that,  if  one 
creditor  is  allowed  to  reap  the  whole  benefit  of  his  se- 
curity, and  at  the  same  time  take  from  the  g-eneral  as- 
sets a  dividend  on  his  whole  claim,  as  if  he  had  no  se- 
curity, he  thereby  obtains  an  advantag^e  over  the  other 
general  creditors,  and  that  he  gets  more  than  his 
ratable  share  of  the  g^eneral  assets?  Let  me  illustrate 
the  unavoidable  consequence  of  the  doctrine  now  rec- 
ognized. A.  loans  a  national  bank  $5,000,  and  takes 
as  the  evidence  of  such  loan  a  note  of  the  bank  for  the 
sum  named,  without  security.  The  lender  is  thus  a 
general  or  unsecured  creditor  for  the  sum  of  S5,000. 
B.  loans  to  the  same  bank  $5,000,  without  security. 
He  is  applied  to  for  a  further  loan,  and  agrees  to  loan 
another  $5,000  on  receiving-  collateral  worth  $5,000, 
and  requires  that  a  new  note  be  executed  for  the 
amount  of  both  loans,  which  recites  that  it  is  secured 
by  the  collateral  in  question.  While  theoretically, 
therefore,  B.  is  a  secured  creditor  for  $10,000,  he 
practically  has  no  security  for  $5,000  thereof.  Insol- 
vency supervenes.  The  general  assets  received  by  the 
comptroller  equal  only  50  per  cent,  of  the  claims.  Now, 
under  the  rule  which  the  court  establishes.  A.,  oa  his 
unsecured  claim  of  $5,000,  collects  a  dividend  of  but 
$2,500,  thereby  -losing  $2,500.  B.,  on  the  other  hand, 
who  proves  $10,000,  taking  no  account  whatever  of 
his  collateral,  realizes  by  way  of  dividends  $5,000,  and 
by  collections  on  collaterals  a  similar  amount,  with 
the  result  that  thoug-h,  as  to  $5,000,  he  was,  in  effect, 
an  unsecured  creditor,  he  loses  nothing-.  B.  is  thus  in 
precisely  as  g-ood  a  situation  as  thougfh  he  had  orig-inally 
demanded  and  received  from  the  borrowing  bank  col- 
lateral securities  equal  in  value  to  the  full  amount 
loaned.  It  is  thus  apparent  that  the  application  of  the 
rule  would  operate    to  enable    B. — who,  I   repeat,  vir- 


B  CAS]  INSOLVENCY  231 

Merrill  v.  National  Bank  of  Jacksonville 

tually  held  no  collateral  security  for  $5,000  of  the  sums 
loaned — to  be  paid  his  entire  debt,  thoug-h  the  assets 
of  the  insolvent  estate  of  the  borrower  paid  but  50 
cents  on  the  dollar,  while  another  creditor,  holding-  an 
unsecured  claim  for  $5,000,  fails  to  realize  thereon 
more  than  S2,500.  Is  it  not  plain  that  thi^  result  is 
produced  by  practically  a  double  payment  to  B.,  that 
is,  by  recog-nizing-  B.  as  a  preferred  creditor  in  the 
specific  property,  of  the  value  of  $5,000,  pledg-ed  to 
him,  withdrawing-  that  property  from  the  greneral 
assets,  and  allowing-  B.  to  solely  appropriate  it,  yet 
permitting-  him,  when  the  secured  part  of  his  debt  is 
thus  virtually  satisfied,  to  ag-ain  assert  the  same  se- 
cured portion  of  the  debt  ag-ainst  other  assets  by  a 
claim  upon  the  g-eneral  fund  in  the  hands  of  the  re- 
ceiver for  the  full  amount  loaned.  The  consequence 
of  the  receipt  of  this  extra  sum  upon  account  of  the 
already  fully  secured  portion  of  the  orig-inal  loan  is 
that  B.  is  enabled  to  offset  it  ag-ainst  the  deficient  div- 
idend on  the  unsecured  portion  of  the  debt,  one 
equaling-  the  other,  thus  closing-  the  transaction  with- 
out loss  to  him. 

Let  us  suppose,  also,  the  case  of  a  creditor  of  a  na- 
tional bank,  who  recovers  a  judg-ment  for  $100,000, 
and  levies  the  same  upon  real  estate  of  the  bank  worth 
only  $50,000.  While  the  leg-al  title  and  possession  is 
still  in  the  bank,  a  receiver  is  appointed,  and  takes 
possession  of  the  real  estate.  Certainl}''  it  cannot  be 
contended  that  this  judg-ment  lien  holder  is  not  in 
equally  as  g-ood  a  position  as  the  holder  of  a  mortg-ag-ed 
lien  or  other  collateral  securit3^  The  doctrine  of  the 
court,  however,  if  applied  to  the  judg-ment  lien  holder, 
would  authorize  him  to  demand  that  the  receiver  treat 
the  real  estate  as  not  embraced  in  the  g-eneral  assets, 
and  that  the  creditor  be  allowed  to  enforce  his  whole 
claim  ag-ainst  the  other  assel^,  irrespective  of  the  value 
of  the  specific  security  acquired  by  his  lien. 

That  the  doctrine  maintained  by  the  court  also  tends 
to  operate  a  discrimination,  as  between  secured  credi- 
tors, in  favor  of  the  one   holdino-  collateral  securities 


232  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

not  susceptible  of  prompt  realization,  is,  I  think,  de- 
monstrable. Thus  a  secured  creditor,  who  takes  col- 
laterals maturing-  on  the  same  day  with  the  debt  owing 
to  himself,  which  collaterals  consist  of  negotiable 
notes,  the  makers  of  which  and  indorsers  upon  which 
are  pecuniarily  responsible,  finds  the  collaterals 
promptly  paid  when  deposited  for  collection,  and,  if 
his  debtor  should  become  insolvent  the  day  after  pa}^- 
ment,  the  creditor  could  only  claim  for  the  residue  of 
the  debt  still  unpaid.  On  the  other  hand,  a  creditor  of 
the  same  debtor,  the  debt  to  whom  matures  at  the 
same  time  as  that  owing-  the  other  creditor,  and  is 
secured  by  collaterals  also  due  contemporaneously,  has 
the  collaterals  protested  for  nonpa3^ment,  and  when 
the  debtor  fails  the  collaterals  have  not  been  realized. 
While  the  first  debtor,  who  had  received  first-class 
collateral,  can  collect  dividends  ag-ainst  the  estate  of 
his  insolvent  debtor  only  for  the  unpaid  portion  of  the 
claim,  losing  a  part  of  such  residue  by  the  inability  of 
the  estate  to  pay  in  full,  the  debtor  who  received 
poor  collateral  collects  dividends  out  of  the  general 
assets  on  his  whole  claim,  and,  if  he  eventually  realizes 
on  his  securities,  may  come  out  of  the  transaction  with- 
out the  loss  of  one  cent.  These  illustrations,  to  m}^ 
mind,  adequately  portray  the  inequalit}^  and  injustice 
which  must  arise  from  the  application  of  the  rules  of 
distribution  now  sanctioned  by  the  court. 

The  fallacies  which,  it  strikes  me,  are  involved  in 
the  two  propositions  sanctioned  by  the  court,  are  these  : 
First.  The  erroneous  assumption  that,  although  the 
act  of  congress  contemplates  that  the  dividends  should 
be  declared  out  of  the  general  assets  after  the  secured 
creditors  have  withdrawn  the  amount  of  their  securit3% 
it  yet  provides  that  the  secured  creditor  who  has  with- 
drawn his  security,  and  thus  been /ro  tanto  satisfied, 
can  still  assert  his  whole  ^laim  against  the  general 
assets,  just  as  if  he  had  no  security,  and  had  not  been 
allowed  to  withdraw  the  same.  Second.  The  mis- 
taken assumption  that  the  act  confers  upon  the  secured 
creditor  a  new  and   substantial   rig"ht,  enabling  him  to 


B  CAS]  INSOLVENCY  233 

Merrill  v.  National  Bank  of  Jacksonville 

obtain,  as  a  consequence  of  the  failure  of  the  bank,  an 
advantag^e  and  preference  which  would  not  have  existed 
in  his  favor  had  the  failure  not  supervened.  This  arises 
from  holding-  that  the  insolvency  fixed  the  amount  of 
the  claim  which  the  secured  creditor  may  assert  as  of 
the  time  of  the  insolvency,  thereby  enabling-  him  to 
ig"nore  any  collections  which  he  may  have  realized  from 
his  securities  after  the  failure,  and  permitting-  him  to 
assert  as  a  claim,  not  the  amount  due  at  the  time  of  the 
proof,  but,  by  relation,  the  amount  due  at  the  date  of 
the  failure  ;  the  result  being-  to  cause  the  insolvency  of 
the  bank  to  relieve  the  creditor  holding-  security  from 
the  oblig-ation  to  impute  any  collections  from  his  col- 
lateral to  his  debt,  so  as  to  reduce  it  by  the  extent  of 
the  collections, — a  duty  which  would  have  rested  on 
him  if  insolvency  had  not  taken  place.  Third.  By 
presupposing-  that,  because  before  failure  a  secured 
creditor  had  a  leg-al  rig-ht  to  ig-nore  the  collaterals 
held  by  him,  and  resort  for  the  whole  debt,  in  the  first 
instance,  ag-ainst  the  g-eneral  estate  of  his  debtor,  it 
would  impair  the  oblig-ation  of  the  contract  to  require 
the  secured  creditor  in  case  of  insolvency  to  take  into 
account  his  collaterals,  and  prevent  him  from  assert- 
ing- his  whole  claim,  for  the  purpose  of  a  dividend, 
against  the  g-eneral  assets.  But  the  preferential  rig-ht 
arising-  from  the  contract  of  pledg-e  is  in  no  wise  im- 
paired by  compelling-  the  creditor  to  first  exercise  his 
preference  against  the  security  received  from  the  debt- 
or, and  thus  confine  him  to  the  specific  advantag-e 
derived  from  his  contract.  Further,  however,  as  the 
contract,  construed  in  connection  with  the  law  g-overn- 
ing-  it,  restricts  the  secured,  as  well  as  the  unsecured 
creditor  to  a  ratable  dividend  from  the  greneral  assets, 
the  secured  creditor  is  prevented  from  enhancing-  the 
advantag-e  obtained  as  a  result  of  the  contract  for  se- 
curity by  proving-  his  claim  as  if  no  security  existed, 
since  to  allow  him  to  so  do  would  destroy  the  rule  of 
ratable  division,  subject  and  subordinate  to  which  the 
contract  was  made.  A  forcible  statement  of  the  true 
doctrine  on  the  foreg-oing-  subject  was  expressed  in  the 


234  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

case  of  Societe  Generale  de  Paris  v.  Geen,  8  App. 
Cas.  606.  The  question  before  the  court  arose  upon 
the  construction  to  be  given  to  a  clause  of  the  Knglish 
bankrupt  act  of  1869,  incidental  to  the  requirement  of 
a  section,  expressly  embodied  for  the  first  time  in  a 
bankrupt  act,  that  the  secured  creditor  should  in  some 
form  account  for  the  collateral  held  by  him  in  proving- 
his  claim  against  the  general  estate.  In  considering 
the  restriction  upon  the  remedy  of  a  secured  creditor 
produced  by  the  insolvency,  and  the  consequent  right 
of  such  creditor  to  receive  only  a  ratable  dividend  on 
the  balance  of  the  debt  after  the  deduction  of  the  value 
of  the  collaterals,  Lord  Fitzgerald  said  (page  620)  : 

"Under  ordinary  circumstances  each  creditor  is  at 
liberty  to  pursue  at  his  discretion  the  remedies  which 
the  law  gives  him  ;  but  when  insolvency  intervenes, 
and  the  debtor  Is  unable  to  pay  his  debts,  the  position 
of  all  parties  is  altered, — the  fund  has  become  inade- 
quate, and  the  policy  of  the  law^  is  to  lead  to  equality. 
In  "pursuing  that  pel  ic3^  the  bankrupt  law  endeavors 
to  enforce  an  equal  distribution,  whilst  it  respects  the 
rights  of  those  who  have  previously,  by  grantor  other- 
wise, acquired  some  security  or  some  preferable  right. 

To  resort,  how^ever,  to  reasoning  for  the  purpose  of 
endeavoring  to  demonstrate  that  where  a  statute  does 
not  allow  preferences  in  case  of  insolvency,  and  com- 
mands a  ratable  distribution  of  the  assets,  a  secured 
creditor  cannot  be  allowed  to  disregard  the  value  of 
his  security,  and  prove  for  the  whole  debt,  seems  to  me 
to  be  unnecessary,  since  that  he  cannot  be  permitted  to 
so  do,  under  the  circumstances  stated,  has  been  the 
universal  rule  applied  in  bankruptcy  in  England  and 
in  this  country  from  the  beginning. 

In  the  earliest  English  bankrupt  act  (34  &  35  Hen. 
VIII.  c.  4)  the  distribution  of  the  general  assets  of  the 
bankrupt  was  directed  to  be  made  "for  true  satisfac- 
tion and  payment  of  the  said  creditors  ;  that  is  to  say, 
to  every  one  of  the  said  creditors  a  portion  rate  and  rate 
like,  according  to  the  quantity  of  their  debts."  In  the 
statute  of  13  Eliz.  c.  7  (and  which    was  in  force  in  this 


B  CAS]  INSOLVENCY  235 

Merrill  v.  National  Bank  of  Jacksonville 

particular  when  the  consolidated  bankrupt  statute  of  6 
Geo.  IV.  c.  16,  was  adopted)  the  distribution  of  assets 
was  directed  in  lang-uag-e  similar  to  that  just  quoted 
from  the  statute  of  Henry  VIII.  Under  these  stat- 
utes, from  the  earliest  times,  it  was  held  by  the  lord 
chancellors  of  Kno-land,  having*  the  supervision  of  the 
execution  of  the  bankrupt  statutes,  that  a  secured 
creditor  could  not  retain  his  collateral  securit}",  and 
prove  for  his  whole  debt,  but  must  have  his  security 
sold,  and  prove  for  the  rest  of  the  debt  only.  Lord 
SOMERS,  in  Wiseman  v.  Carbonell  (1695)  1  Eq.  Cas. 
Abr.  312,  pi.  ;  Lord  Hardwicke,  in  Re  Howell  (1737) 
7  Vin.  Abr.  101,  pi.  13,  and  in  Ex  parte  Grove  (1747)  1 
Atk.  105 ;  Lord  Thurlow,  in  Ex  parte  Dickson 
(1789)  2  Cox,  Ch.  196,  and  in  Ex  farte  Coming  (1790) 
Id.  225  ;  Cooke,  Bankr.  Laws  (1st  Ed.,  1786)  114,  and 
Id.  (4th  Ed.,  1799)  119. 

In  1794  (4  Brown,  Ch.  *550)  the  prevailing-  practice 
with  respect  to  a  sale  of  a  mortg-age  security  was  reg-- 
ulated  by  a  g-eneral  order  formulated  b}^  Lord  Chan- 
cellor Loughborough,  wherein,  among-  other 
things,  it  was  provided  that,  in  case  the  proceeds  of 
sale  should  be  insufficient  to  pay  and  satisfy  what 
should  be  found  due  upon  the  mortgage,  "that  such 
mortgagee  or  mortgagees  be  admitted  a  creditor  or 
creditors  under  such  commission  for  such  deficiency, 
and  to  receive  a  dividend  or  dividends  thereon  out  of 
the  bankrupt's  estate  or  effects,  ratably  and  in  propor- 
tion with  the  rest  of  the  creditors  seeking  relief  under 
the  said  commission,"  etc. 

Concerning  the  practice  in  bankruptcy.  Lord 
Chancellor  Eldon,  in  1813,  in  Ex  parte  Smith,  2 
Rose,  63,  said  : 

"The  practice  has  been  long  established  in  bank- 
ruptcy not  to  suffer  a  creditor  holding  a  security  to 
prove  unless  he  will  give  up  that  security,  or  the  value 
has  been  ascertained' by  the  sale  of  it.  The  reason  is 
obvious.  Till  his  debt  has  been  reduced  by  the  pro- 
ceeds of  that  sale,  it  is  impossible  correctly  to  say 
what  the  actual  amount  of  it  is.     *     ^     "     It  is,  how- 


236  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

ever,  clearl}^  within  the  discretion  of  the  court  to  relax 
this  rule,  and  cases  may  occur  in  which  it  would  be 
for  the  benefit  of  the  g-eneral  creditors  to  relax  it." 

The  first  two  bankrupt  statutes  enacted  in  this 
country  (Act  April  4,  1800,  c.  19  [2  Stat.  19]  ;  Act 
Auo-.  4,  1841,  c.  9  [5  Stat.  440])  required  a  ratable  dis- 
tribution of  the  assets,  and  it  was  conceded  in  arg-u- 
ment  that  the  universal  practice  enforced  under  these 
acts  was  to  require  a  creditor  holding-  collateral  secu- 
rity to  deduct  the  amount  of  his  security,  and  prove  onW 
for  the  residue  of  the  debt.  This  court,  speaking- 
throug-h  Mr.  Justice  Story,  in  1845,  in  Re  Christy, 
3  How.  414,  declared  that  under  the  act  of  1841.  "if 
creditors  have  a  pledg-e  or  mortgfagfe  for  their  debt, 
the}'  ma}^  a-Pply  to  the  court  to  have  the  same  sold,  and 
the  proceeds  thereof  applied  towards  the  pa3'ment  of 
their  debts /ro  tanto,  and  to  prove  for  the  residue." 

As  the  universal  rule  and  practice  in  bankruptc}'  in 
Eng-land  and  in  this  country,  up  to  and  including  the 
bankrupt  act  of  1841,  was  solely  the  result  of  the  stat- 
utory requirement  that  the  assets  should  be  ratably 
distributed  among-  the  g-eneral  creditors,  my  mind 
fails  to  discern  why  the  requirement  for  ratable  dis- 
tribution of  the  assets  in  the  act  for  the  liquidation  of 
failed  national  banks  should  not  have  the  same  mean- 
ing-, and  produce  the  same  result,  as  the  substantially 
similar  provisions  had  always  meant  and  had  always 
operated  in  Kng-land  for  hundreds  of  years,  and  in  this 
country  for  many  years  before  the  adoption  by  con- 
g-ress  of  the  act  for  the  liquidation  of  national  banks. 
Indeed,  the  fact  that  the  requirement  of  ratable  distri- 
bution had,  by  a  long  course  of  practice  and  judicial 
construction  in  Eng-land  and  in  this  country,  required 
the  secured  creditor  to  account  for  his  securit}'  before 
proving-  ag-ainst  the  g-eneral  assets,  g-ives  rise  to  the 
application  of  the  elementary  canon  of  construction 
that  where  words  are  used  in  a  statute,  which  words, 
at  the  time,  had  a  settled  and  well-understood  mean- 
ing-, their  insertion  into  the  statute  carries  with  them  a 
legislative  adoption  of  the  previous  and  existing-  mean- 
ing-. 


B  CAS]  INSOLVENCY  237 

Merrill  v.  National  Bank  of  Jacksonville 

The  reasoning-  by  which  it  is  maintained  that  the 
requirement  for  ratable  distribution  should  not  be 
applied  in  the  act  providing-  for  the  liquidation  of  an 
insolvent  national  bank  may  be  thus  summed  up:  True 
it  is  that  universally  in  bankruptcy  in  England  and  in 
this  country  the  rule  was  as  above  stated,  but  outside 
of  bankruptcy  a  different  practice  prevailed  in  E^ngland, 
known  as  the  "chancery  rule,"  and,  as  the  winding-  up 
of  an  insolvent  national  bank  does  not  present  a  case  of 
bankruptcy,  its  liquidation  is  g-overned  by  such  chan- 
cery rule,  and  not  by  the  bankruptcy  rule.  The 
bankruptcy  rule,  it  is  said,  is  commonly  so  called 
because  enforced  by  bankruptcy  courts  in  the  exercise 
of  their  "peculiar"  jurisdiction,  and  the  courts  which 
refuse  to  apply  the  rule  generally  declare  that  it  arose 
from  express  provisions  in  bankrupt  statutes  requiring- 
a  creditor  to  surrender  his  collaterals,  or  deduct  for 
their  value,  before  proving-  against  the  estate. 

Pretermitting-  for  a  moment  an  examination  of  this 
reasoning-,  it  is  to  be  remarked,  in  passing-,  that  the 
argument,  if  sound,  rests  upon  the  hypothesis  that  all 
the  bankruptcy  laws  from  the  beg-inning-  in  Kng-laud 
and  in  our  own  country,  and  the  universal  course  of 
decision  thereon  and  the  practice  thereunder,  have 
worked  out  inequality  and  injustice  by  depriving-  a 
secured  creditor  of  rights  which  it  is  now  asserted 
belonged  to  him,  and  which  could  have  been  exercised 
by  him  without  producing-  inequality.  This  deduction 
follows,  for  it  cannot  iDe  that,  if  not  to  compel  the 
creditor  to  deduct  produces  no  inequality  or  injustice, 
then  to  compel  him  to  do  so  would  have  precisel}'  the 
same  result.  The  two  opposing-  and  conflicting  rules 
cannot  both  be  enforced,  and  yet  in  each  instance 
equality  result.  At  best,  then,  the  contention  admits 
that  by  the  consensus  of  mankind  not  to  compel  the 
secured  creditor  to  deduct  the  value  of  his  collaterals 
before  proving-  produces  inequality,  for  of  all  statutes 
those  relatingfto  bankruptcy  have  most  for  their  object 
an  equal  distribution  of  the  assets  of  the  insolvent 
among-  his  creditors. 


238  INSOLVENCY  [vol  I 

Merrill  z>.  National  Bank  of  Jacksonville 

It  is  worthy,  also,  of  notice,  in  passingf,  that  the 
reasoning-  to  which  we  have  referred  rests  upon  the 
assumption  that  the  act  of  cong-ress  providing  for  the 
li(|uidation  of  the  affairs  of  a  national  bank  and  a  dis- 
tribution of  the  assets  thereof  among  the  creditors  is 
not  substantially  a  bankrupt  statute.  It  certainly  is  a 
compulsory  method  provided  by  law  for  winding  up 
the  concerns  of  an  insolvent  bank,  for  preventing  pref- 
erences, and  for  securing  an  equal  and  ratable  division 
of  the  assets  of  the  association  among  its  creditors. 
And  it  assuredly  can  be  safely  assumed  that  cong-ress, 
in  adopting  the  rule  of  ratable  distribution  in  the 
national  banking-  act,  did  not  intend  that  the  words 
embodying  the  rule  should  be  so  construed  as  to 
produce  a  result  contrar}-  to  that  which,  for  hundreds 
of  years,  had  been  recog-nized  as  necessarily  implied  by 
the  emplovment  of  similiar  lang-uag-e.  It  may  also,  I 
submit,  be  likewise  considered  as  certain  that  it  was 
not  intended,  it  using  the  words  "ratable  distribution" 
in  the  statute,  to  bring- about  an  unequal,  instead  of  a 
ratable,  distribution  of  the  general  assets. 

But,  coming  to  the  proposition  itself,  is  there  any 
foundation  for  the  assertion  that  the  rule  or  practice  in 
bankruptcy  requiring-  the  secured  creditors  to  account 
for  his  security  was  the  result  of  something  peculiar 
in  the  jurisdiction  of  bankruptcy  courts,  other  than 
the  requirement  contained  in  bankruptcy  statutes  that 
the  assets  should  be  distributed  ratably  among-  credi- 
tors ;  and  is  there  any  merit  in  the  contention  that  the 
rule  was  the  consequence  of  an  express  provision  in 
such  laws  imposing  the  obligation  referred  to  on  the 
secured  creditor  ? 

A  careful  examination  of  every  bankrupt  statute  in 
England  from  the  first  statute  of  34  &  35  Hen.  VIII. 
c.  4,  down  to  and  including  the  consolidated  bankrupt 
act  of  ()  Geo.  IV.  c.  16,  fails  to  disclose  any  provision 
sustaining  the  statement  that  the  rule  in  bankruptcy 
depended  upon  express  statutory  requirement,  and,  on 
the  contrary,  shows  that  it  was  simply  a  necessary 
outgrowth    of    the    command   of  the  statute  that  there 


B  CAS]  INSOLVENCY  239 

Merrill  v.  National  Bank  of  Jacksonville 

should  be  an  equal  distribution  of  the  bankrupt's 
assets. 

I  submit  that,  not  only  an  examination  of  the 
Eng-lish  statutes  makes  clear  the  truth  of  the  foreg-oingf, 
but  that  its  correctness  is  placed  beyond  question  by 
the  statement  of  Lord  Chancellor  E^ldon,  respect- 
ing* proof  in  bankruptcy  by  a  secured  creditor,  already 
adverted  to,  that,  "till  his  debt  has  been  reduced  by 
the  proceeds  of  that  sale  [that  is,  of  the  security],  it  is 
impossible  correctly  to  say  what  the  actual  amount  of 
it  is."  And  as  an  authoritative  declaration  of  the 
orig-in  of  the  rule  the  opinion  of  Vice  Chancellor  Malins 
in  JSx  parte  Alliance  Bank  (1868)  3  Ch.  App.,  note  at 
pagfe  773,  is  in  point.     The  vice  chancellor  said: 

"This  rule  [requiring-  a  creditor  to  realize  his 
security,  and  prove  for  the  balance  of  the  debt  only] 
does  not  depend  on  any  statutory  enactment,  but  on  a 
rule  in  bankruptcy,  established  irrespective  of  express 
statutory  enactment,  and  under  the  statute  of  Klizabeth. 
which  provides  :  'Or  otherwise  to  order  the  same  [/. 
€.  the  assets]  to  be  administered  for  the  due  satisfaction 
and  payment  of  the  said  creditors  ;  that  is  to  say,  for 
every  one  of  the  said  creditors  a  portion,  rate  and  rate 
alike,according' to  the  quantity  of  his  and  their  debts.'  " 

Indeed,  not  only  was  the  obligfation  of  the  secured 
creditor  to  account  for  his  security  derived  from  the 
provision  as  to  ratable  distribution,  but  from  that  pro- 
vision also  orig-iuated  the  equally  well-settled  rule 
causing"  interest  to  cease  upon  the  issuance  of  the  com- 
mission of  bankruptcy.  As  early  as  1743,  Lord  Hard- 
WICKE,  in  Bromley  v.  Goodere,  1  Atk.  75,  in  speaking- 
of  the  suspension  of  interest  by  the  effect  of  bank- 
ruptcy, said  :  "There  is  no  direction  in  the  act  for  that 
purpose,  and  it  has  been  used  only  as  the  best  method 
of  settling-  the  proportion  among-  the  creditors  that  they 
may  have  a  rate-like  satisfaction,  and  is  founded  upon 
the  equitable  power  g-iven  them  by  the  act." 

While,  g-enerally,  the  claim  that  the  bankruptcy 
rule  was  the  creature  of  an  express  provision  of  the 
bankruptcy  acts,   other   than  the  requirement  as  to  a 


240  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

ratable  distribution  of  assets,  rests  upon  a  mere  state- 
ment to  that  effect  without  any  reference  to  the  specific 
text  of  the  bankrupt  act,  which  it  w^as  assumed  made 
such  requirement,  in  one  instance,  in  the  brief  of  coun- 
sel in  an  early  case  in  this  country  (Findlay  v.  Hosmer 
[1817]  2  Conn.  320),  the  statement  is  made  in  a  more 
specific  form.  A  particular  section  of  an  Enijlish 
bankrupt  statute  is  there  referred  to  as,  in  effect,  ex- 
pressly requiring-  a  secured  creditor  to  account  for  his 
collaterals  in  order  to  prove  against  the  general  assets. 
The  statute  thus  referred  to  was  section  9  of  21  Jac.  I. 
c.  19.  But  an  examination  of  the  section  relied  on 
shows  that  it  in  no  wise  supports  the  assertion.  The 
pertinent  portion  of  the  section  reads  as  follows  : 

""  *  *  All  and  every  creditor  and  creditors  having- 
security  for  his  or  their  several  debts,  by  judgment, 
statute,  recognizance,  specialty  with  penalty  or  with- 
out penalty,  or  other  security,  or  having  no  security, or 
having  made  attachments  in  London,  or  any  other  place, 
by  virtue  of  any  custom  there  used,  of  the  goods  and 
chattels  of  any  such  bankrupt,  whereof  there  is  no 
execution  or  extent  served  and  executed  upon  any  of  the 
lands,  tenements,  hereditaments,  goods,  chattels  and 
other  estate  of  such  bankrupts,  before  such  time  as  he 
or  she  shall  or  do  become  bankrupt,  shall  not  be  relieved 
upon  any  such  judgment, statute, recognizance, specialtv, 
attachments  or  other  security  for  any  more  than  a 
ratable  part  of  their  just  and  due  debts,  with  the  other 
creditors  of  the  said  bankrupt,  without  respect  to  any 
such  penalty  or  greater  sum  contained  in  an}^  such 
judgment,  statute,  recognizance,  specialty  with  penalty, 
attachment  or  other  security." 

The  securities  other  than  attachment  referred  to  in 
this  section  were  manifestly  embraced  in  the  class 
known  at  common  law  as  "personal"  security,  as  dis- 
tinguished from  "real"  security,  or  security  upon 
property.  Sweet,  Law  Diet,  verbo  "Security."  In 
other  words,  the  effect  of  the  section  was  but  to  forbid 
preference  in  favor  of  creditors  which  at  law  would 
have   resulted  from   the  particular  form  in  which  the 


B  CAS]  INSOLVENCY  241 

Merrill  v.  National  Bank  of  Jacksonville 

debt  was  evidenced,  and  from  which  form  a  claim 
would  be  raised  to  a  hig-her  rank  than  a  simple  contract 
debt.  That  this  is  the  sig-nilicance  of  the  word  "se- 
curity" as  used  in  this  section  is  shown  by  the  folio  wingf 
excerpt  from  Cooke's  treatise  on  Bankrupt  Laws, 
published  in  1786.     At  pag-e  114  he  says  : 

"The  aim  of  the  leg-islature  in  all  the  statutes  con- 
cerning' bankrupts  being"  that  the  creditors  should  have 
an  equal  proportion  of  the  bankrupt's  effects,  creditors 
of  every  degree  must  come  in  equally  ;  nor  will  the 
nature  of  their  demands  make  any  difference,  unless 
they  have  obtained  actual  execution,  or  taken  some 
pledge  or  security  before  an  act  of  bankruptcy  commit- 
ted. For  when  a  creditor  comes  to  prove  his  debt  he 
is  obliged  to  swear  whether  he  has  a  security  or  not ; 
and,  if  he  has,  and  insists  upon  proving,  he  must  deliver 
it  up  for  the  benefit  of  his  creditors,  unless  it  be  a 
joint  security  from  the  bankrupt  and  another  person," 
etc. 

The  fact  that  the  expression  "security,"  contained 
in  the  section  referred  to,  had  no  reference  to  security 
on  property,  is  further  demonstrated  by  the  subsequent 
statute  of  6  Geo.  IV.  c.  9,  §  103,  which  re-enacted  in 
an  altered  form  the  ninth  section  of  the  statute  of 
James  ;  for  the  re-enacted  section,  although  it  referred 
in  broad  terms  to  securities  generally,  3'et  especially 
excepted  the  case  of  a  mortgage  or  pledge.  The  sec- 
tion is  as  follows  : 

"Sec,  103.  And  be  it  enacted,  that  no  creditor  having 
security  for  his  debt,  or  having-  made  any  attachment 
in  London,  or  any  other  place  by  virtue  of  any  custom 
there  used,  of  the  goods  and  chattels  of  the  bankrupt, 
shall  receive  upon  any  such  security  or  attachment 
more  than  a  ratable  part  of  such  debt,  except  in  respect 
of  any  execution  or  extent  served  and  levied  by  seizure 
upon,  or  any  mortgage  of  or  lien  upon  any  part  of  the 
property  of  such  bankrupt  before  the  bankruptcy." 

Is  it  pretended  anywhere  that,  after  the  re-enactment 
of  section  9,  St.  Jac.  I.,  found  in  section  103,  c.  9,  (> 
Geo.  IV.,  that  the  obligation  of  a  secured  creditor  to 

B  CAS— 16 


242  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

account  for  his  collateral  before  he  took  a  dividend  out 
of  the  g-eneral  assets  ceased  to  exist  ?  Certainly,  there 
is  no  such  contention.  If,  however,  that  duty  of  the 
g"eneral  creditor  arose,  not'  from  the  provision  as  to 
ratable  distribution,  but  from  the  provisions  of  section 
9  of  the  act  of  James  as  claimed,  then  necessarily  such 
obligation  on  the  part  of  the  g-eneral  creditor  would 
have  ceased  immediately'  on  the  enactment  of  the  stat- 
ute of  6  Geo.  IV.,  which  expressly  excepted  the  mort- 
gag-e  creditor  from  the  operation  of  the  particular  section 
which  it  is  contended  imposed  the  duty  on  the  mortg-ag-e 
creditor  to  account.  The  continued  enforcement  of  the 
rule  which  required  the  mortg-ag-e  creditor  to  deduct 
the  value  of  his  security  before  proving-  agfainst  g-eneral 
assets  after  the  re-enactment  of  section  9  of  the  statute 
of  Georg-e  referred  to  can  lead  to  but  one  conclusion  ; 
that  is,  that  the  duty  of  the  mortg-ag-e  creditor  before 
•existing-  arose  from  the  provision  for  ratable  distribu- 
tion, and  not  from  the  terms  of  section  9  of  the  statute 
of  James,  since  that  duty  continued  to  be  compelled 
after  the  re-enactment  of  that  section  in  terms  which 
renders  it  impossible  to  contend  that  that  section 
created  the  duty. 

A  similar  course  of  reasoning-  applies  to  bankrupt 
statutes  of  this  country. 

Section  31  of  our  first  bankrupt  statute  fchapter  19, 
Act  April  4,  1800  [2  Stat.  30])  was, in  substance  and  ef- 
fect similar  to  the  provision  in  the  act  of  James.  The 
statute  of  1800  is  said  to  have  been  a  consolidation  of  the 
provisions  of  previous  Eng-lish  bankrupt  statutes 
(Tucker  v.  Oxley,  5  Cranch,  34,  42;  Roosevelt  t-.  Mark, 
6  Johns.  Ch.  285);  and  in  Tucker  v.  Oxley,  Chief 
Justice  Marshall  declared  that  for  that  reason  the 
decisions  of  the  E^nglish  judges  as  to  the  effect  of 
those  acts  mig-ht  be  considered  as  adopted  with  the  text 
that  they  expounded.     Section  31  reads  as  follows: 

"Sec.  31.  And  be  it  further  enacted,  that  in  the  dis- 
tribution of  the  bankrupt's  effects,  there  shall  be  paid 
to  every  one  of  the  creditors  a  portion-rate,  according- 
to  the  amount  of  their  respective  debts,  so  that  every 


B  CAS]  INSOLVENCY  '  243 

Merrill  v.  National  Bank  of  Jacksonville 

creditor  having-  security  for  his  debt  by  judgment, 
statute,  recog-nizance,  or  specialty,  or  having- an  attach- 
ment under  any  of  the  laws  of  the  individual  states,  or 
of  the  United  States,  on  the  estate  of  such  bankrupt, 
(provided,  there  be  no  execution  executed  upon  any  of 
the  real  or  personal  estate  of  such  bankrupt,  before  the 
time  he  or  she  became  bankrupts)  shall  not  be  relieved 
upon  any  such  judg-ment,  statute,  recog-nizance, 
specialty,  or  attachment,  for  more  than  a  ratable  part 
of  his  debt,  with  the  other  creditors  of  the  bankrupt." 

This  provision  of  the  act  of  1800  was,  however, 
omitted  from  the  bankrupt  act  of  1841,  manifestly 
because  it  had  become  unnecessary.  The  later  statute 
contains  in  the  fifth  section  a  g-eneral  provision  forbid- 
ding- all  preferences  except  in  favor  of  two  classes  of 
debts,  thus  rendering-  it  superfluous  to  enumerate  cases 
in  which  there  should  be  no  preference.  It  was,  how- 
ever, under  the  act  of  1841,  which  was  drafted  by  Mr. 
Justice  Story  (2  Story's  Life  of  Story, 407),  that  this 
court,  speaking-  throug-h  that  learned  justice,  in  Re 
Christy,  already  cited,  declared  that  a  secured  creditor 
must  account  for  his  security  when  proving-  ag-ainst  the 
bankrupt  estate.  How  it  can  be  now  arg-ued  that  the 
requirement  that  such  creditor  should  only  so  prove 
his  claim  was  the  result  of  a  provision  not  found  in  the 
act  of  1841.  and  clearly  shown  by  all  the  antecedent 
leg-islation  not  to  refer  to  a  creditor  holding-  property 
security,  my  mind  fails  to  comprehend. 

True  it  is  that  both  in  our  own  act  of  -1867  and  in 
the  E)ng-lish  bankrupt  act  of  1869  there  were  inserted 
express  provisions  requiring-  a  secured  creditor  to 
account  for  his  collaterals  before  proving-  ag-ainst  the 
g-eneral  assets.  But  this  was  but  the  incorporation  into 
the  statutes  of  the  rule  which  had  arisen  as  a  conse- 
quence of  the  requirement  for  a  ratable  distribu- 
tion, and  which  had  existed  for  hundreds  of  3^ears  before 
the  statutes  of  1867  and  1869  were  adopted.  In  other 
words,  the  express  statutory  requirement  only  em- 
bodied in  the  form  of  a  leg'islative  enactment  what 
theretofore  from  the  earliest  time  had  been  universally 


244  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

enforced  because  of  the  provisions  for  a  ratable  distribu- 
tion. 

The  rule  in  bankruptcy  imposing*  the  duty  upon  the 
creditor  to  account  for  his  security  before  proving- 
being",  then,  the  result  of  the  provision  of  the  bankrupt 
laws  requiring-  ratable  distribution,  I  submit  that  the 
same  requirements  upon  such  creditor  should  be  held 
to  arise  from  a  like  provision  contained  in  the  act  of 
cong-ress  under   consideration. 

But,  coming-  to  consider  the  chancery  rule  which  it  is 
contended  lends  support  to  the  doctrines  applied  in  the 
cases  at  bar. 

The  foundation  upon  which  the  so-called  chancery 
rule  rests  is  the  case  of  Mason  v.  Bog*g",  2  Mylne  &  C. 
443, decided  in  1837,  where  Lord  Chancellor  Cotten- 
HAM  expressed  his  approval  of  the  contention  that  a 
mortg-ag-e  creditor, despite  the  death  and  insolvency  of  his 
debtor,  possessed  the  contract  rig-ht  to  assert  his  whole 
claim  ag-ainst  g-eneral  assets  in  the  course  of  adminis- 
trator in  chancery,  without  reg^ard  to  his  mortg^age 
securit3\  The  question  was  not  directly  decided,  how- 
ever, as  to  whether  the  creditor  mig-ht  prove  in  the  ad- 
ministration for  the  whole  amount  of  the  debt,  but  was 
reserved.  As  stated,  however,  the  reasoning-  of  the 
court  favored  the  existence  of  such  rigfht,  upon  the 
theory  that  a  court  of  chancery,  when  administering" 
assets,  in  the  absence  of  a  statute  reg-ulating-the  sub- 
ject, could  not  deprive  a  secured  creditor  of  leg-al  rig-hts 
previously  existing-  w^hich  he  mig-lit  have  asserted  at 
law,  althoug-h,  by  permitting-  the  exercise  of  such 
rig-hts,  preferences  in  the  general  assets  would  arise. 

The  next  case  in  point  of  time  in  Eng-land — and, 
indeed,  the  one  upon  which  most  reliance  is  placed  by 
those  favoring-  the  chancery  rule — is  Kellock's  Case, 
reported  in  3  Ch.  App.  769,  involving-  two  appeals, 
and  arg-ued  before  Sir  W.  Page  Wood,  L.  J.,  and 
Sir  C.  J.  Selwyn,  L.  J.  The  cases  arose  in  the  wind- 
ing up  of  companies  by  virtue  of  the  statute  of  25  &  26 
Vict.  c.  89.  The  issue  presented  in  each  case  was 
whether   a   creditor     having-    collateral     security    was 


B  CAS]  INSOLVENCY  24-5 

Merrill  v.  National  Bank  of  Jacksonville 

entitled  to  dividends  upon  the  full  amount  of  the  debt 
without  reference  to  the  value  of  collaterals  ;  and  in 
one  of  the  cases  the  lower  court  applied  the  doctrine 
supported  by  the  reasoning-  in  Mason  v.  Bog-g-,  while 
in  the  other  the  lower  court  decided  the  bankruptc}' 
rule  governed.  The  appellate  court  held  that  the 
chancery  practice  should  be  followed.  The  claim  was 
made  that  the  secured  creditor  ought  not  to  be  allowed 
to  take  a  dividend  on  the  full  amount  of  his  claim,  be- 
cause, among  other  reasons,  of  section  133  of  the  act, 
which  provided  as  follows  : 

"133.  The  following  consequences  shall  ensue  upon 
the  voluntary  winding-up  of  a  company  : 

"(1)  The  property  of  the  company  shall  be  applied 
in  satisfaction  of  its  liabilities  pari  passu  and,  subject 
thereto,  shall,  unless  it  be  otherwise  provided  by  the 
regulations  of  the  company,  be  distributed  amongst 
the  members  according  to  their  rights  and  interests  in 
the  company," 

This  contention,  however,  was  answered  by  Lord 
Justice  Wood,  who  said  (page  778)  : 

"There  is  a  clause  in  the  companies  act  of  1862 
which  says  that  in  a  voluntary  winding  up  equal  dis- 
tribution is  to  be  made  among  creditors  ;  an  expression 
similar  to  which,  in  13  Eliz.  c.  7,  appears  to  have  led 
to  the  establishment  of  the  rule  in  bankruptcy." 

He  then  called  attention  to  the  fact  that  a  voluntary 
winding  up  was  not  limited  to  cases  of  insolvent 
companies,  but  might  be  resorted  to  on  behalf  of  a 
solvent  one  ;  and  he  proceeded  to  comment  upon  the 
fact  that  in  previous  winding-up  acts,  "when  the 
legislature  intended  proceedings  to  be  conducted  ac- 
cording to  the  course  in  bankruptcy,  it  said  so," 
concluding  with  the  declaration  that  the  omission  to  do 
so  in  the  case  before  the  court  indicated  the  purpose 
of  parliament  that  the  court  should  be  governed  b}^  the 
chancery  rule.  Lord  Justice  Selwyn,  in  a  measure, 
also  adopted  this  view,  saying  (page  782)  : 

"I  think,  therefore,  that  the  onus  is  clearly  thrown 
on  those  persons  who  come  here  and  say  that  when  the 


246  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

leg-islature,  with  a  knowledg-e  of  the  existence  of  the 
difference  between  the  practice  in  bankruptcy  and  the 
practice  in  chancery,  intrusted  the  winding-  up  of  the 
companies  to  the  court  of  chancery,  and  said  in  express 
terms  that  the  practice  of  the  court  of  chancery  was  to 
prevail,  they  intended  by  some  implication  or  inference 
to  diminish,  prejudice,  or  affect  the  rig^hts  of  creditors. 
I  can  find  no  trace  of  any  such  intention.  I  think, 
therefore,  we  are  bound  to  follow  the  established 
practice  of  the  court  of  chancery,  especially  when  we 
find  that  that  practice  has  been  followed  ever  since  the 
passing-  of  the  wnuding"-up  act,  and  so  long- as  windingf- 
up  orders  have  been  made  in  the  court  of  chancery." 

The  whole  subject  has  been  set  at  rest,  however,  in 
Great  Britain,  by  section  25  of  the  judicature  act  of 
1873,  and  by  an  amendment  thereto,  adopted  in  1875 
(chapter  77),  which  expresslv  required  that  in  the 
administration  in  chancery  of  an  insolvent  estate  of  one 
deceased  and  in  proceeding's  in  the  winding-  up  of  an 
insolvent  company  under  the  companies  act  "the  same 
rule  shall  prevail  and  be  observed  as  to  the  respective 
rig-hts  of  secured  and  unsecured  creditors,  and  as  to 
debts  and  liabilities  provable,  *  *  *  as  may  be  in 
force  for  the  time  being-  under  the  law  of  bankruptcy, 
with  respect  to  the  estates  of  persons  adjudg-ed  bank- 
rupt." 

So  that  now,  in  Great  Britain,  in  all  proceeding-s 
involving-  the  distribution  of  an  insolvent  fund,  a 
secured  creditor  can  only  prove  for  the  balance  which 
may  remain  after  deduction  of  the  proceeds  or  value  of 
collateral  security. 

In  view,  therefore,  of  the  Eng-lish  leg-islation  in 
1873  and  1875,  which  has  rendered  it  impossible  in 
cases  of  insolvency  to  apply  the  doctrine  of  the  Kellock 
Case,  we  need  not  particularly  notice  decisions  ren- 
dered in  Eng-land  subsequent  to  1868,  when  the  Kel- 
lock Case  w^as  decided,  particularly  as  the  tribunals 
which  rendered  such  decisions  were  subordinate  to  the 
court  of  appeal,  and   necessarily  bound  by  its  ruling-s. 

Now,  I    submit,    as    the  Kng-lish  chancellors,   from 


B  CAS]  INSOLVENCY  247 

Merrill  v.  National  Bank  of  Jacksonville 

the  date  of  the  enactment  of  the  earliest  Eng-lish 
bankrupt  law,  felt  constrained  to  compel  a  secured 
creditor  to  account  for  his  security  before  proving- 
ag-ainst  the  general  assets  of  the  bankrupt  estate, 
because  parliament  had  directed  a  ratable  distribution 
of  all  such  assets,  it  cannot,  in  consonance  with  sound 
reasoning,  be  said  that  this  court  is  to  apply  the 
chancery  rule  to  the  distribution  of  the  assets  of  an 
insolvent  national  bank,  as  to  which  congress  has 
directed  a  ratable  distribution,  because  in  E^ngland  a 
different  rule  was  for  a  time  applied  to  an  act  of 
parliament  providing  not  solely  for  the  liquidation  of 
an  insolvent  estate,  but  equally  to  a  solvent  and  insol- 
vent one,  and  which  rule  was  so  applied  in  Kngland 
because  a  particular  statute  was  construed  as  requiring- 
that  the  practice  pursued  in  chancery  in  administering; 
upon  estates  should  govern. 

It  is  worthy  of  note  that  Lord  Justice  Wood,  after 
stating  in  his  opinion  in  the  Kellock  Case  that  the 
bankruptcy  rule  was  "adopted  by  a  court  having  a 
peculiar  jurisdiction,  established  for  administering- 
the  property  of  traders  unable  to  meet  their  engage- 
ments," conceded  that  the  provision  in  the  statute  of 
13  KHz.  c.  7,  requiring  equal  distribution,  "led  to  the 
establishment  of  the  rule  in  bankruptcy. ' '  But  the  lord 
justice  took  the  cases  then  under  consideration  out  of  the 
operation  of  the  provision  of  the  statute  of  Klizabeth 
because  of  provisions  found  in  the  companies  act, 
which,  in  his  opinion,  gave  rise  to  a  contrary  view  in 
cases  governed  by  that  act.  The  distribution  of  the 
assets  of  a  failed  national  bank  under  the  act  of 
congress,  it  is  obvious,  presents  the  "peculiar"  features 
which  Lord  Justice  Wood  had  in  mind,  since  the 
requirement  of  ratable  distribution  is  the  exact  equiv- 
alent of  the  provision  contained  in  the  statute  of 
Elizabeth.  But  the  reasoning  now  emplo3^ed  to  cause 
the  rule  announced  in  the  Kellock  Case  to  apply  so  as 
to  defeat  the  ratable  distribution  provided  by  the  act 
of  congress  is  made  to  rest  upon  the  assumption  that 
the  act  of  congress  does  not  contain  the  peculiar  require- 


248  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

ment  which  was  found  in  the  bankruptcy  acts,  from 
W'hich  the  duty  of  the  secured  creditor  to  account  for 
his  security  before  taking-  a  dividend  from  the  general 
assets  arose.  It  comes,  then,  to  this  :  That  the  theor}' 
b}"  which  the  obsolete  doctrin«  of  the  Kellock  Case  is 
made  to  apply  rests  upon  an  assumption  which  repu- 
diates the  reasoning-  of  that  case  ;  in  other  words,  that 
the  result  of  the  Kellock  Case  is  taken  and  applied  to 
this  case,  while  the  reasoning-  upon  which  the  decision 
of  the  Kellock  Case  was  based  is,  in  effect,  denied. 

That  to  permit  a  secured  creditor  to  retain  his  spe- 
cific contract  security  and  also  to  prove  ag-ainst  the 
g-eneral  assets  of  his  insolvent  debtor  for  the  whole 
amount  of  the  debt  was  deemed  to  work  out  inequality 
is  shown,  not  only  by  the  fact  that  it  was  not  applied 
in  bankruptcy,  but  that,  in  the  administration  of  equit- 
able, as  contradisting-uished  from  leg-al,  assets,  courts 
of  equit}',  following-  the  maxim  ''Equiias  est  quasi 
eqiialitas, ' '  would  not  permit  claimants  ag-ainst  equitable 
assets  to  share  in  the  distribution  of  such  assets  until 
they  had  accounted  for  any  advantag-e  g-ained  by  the  as- 
sertion ag-ainst  the  general  estate  of  the  debtor  of  a 
preference  permitted  at  law.  Morrice  v.  Bank,  Cas.  t. 
Talb.  218  ;  Sheppard  v.  Kent,  2  Vern.  435  ;  Deg-f.  Deg-, 
2  P.  Wms.  416  ;  Chapman  v.  Esg-ar,  1  Smale  &  G.  575  ; 
Bain  V.  Sadler,  L.  R.  12  Eq.  570  ;  Purdy  r.  Doyle,  1 
Paig-e,  447  ;  Bank  v.  Lockridge,  92  Ky.  472,  18  S.  W. 
1;  1  Story,  Eq.  Jur.  (12th  Ed.)  p.  543;  1  Wats.  Comp. 
Eq.  (2d  Rev.  Ed.)  p.  35,  c.  11. 

It  was  undoubtedly  from  a  consideration  of  this  fun-, 
damental  rule  of  equit}-  in  construing-  the  statutor}'  re- 
quirement for  ratable  division  of  g-eneral  assets  that  the 
bankruptcy  rule  was  formulated.  That  rule,  however, 
in  effect  declared  that  secured  creditors  mig-ht  retain 
their  preferential  contract  rights  in  particular  portions 
of  the  estate  of  the  insolvent  debtor,  but  that  it  was  the 
purpose  of  parliament,  in  commanding-  ratable  distri- 
bution, that  g-eneral  assets — that  is,  assets  disincum- 
bered  of  liens — should  be  distributed  only  among-  the 
g-eneral    or  unsecured  creditors  ;  the    necessary   effect 


B  OAS]  INSOLVENCY  249 

Merrill  v.  National  Bank  of  Jacksonville 

being"  that  a  secured  creditor  could  not  prove  against 
ofeneral  assets  without  surrendering*  his  security,  thus 
becoming  a  general  or  unsecured  creditor  for  the  whole 
amount  of  the  debt,  or  realizing*  upon  the  security,  or 
in  some  form  accounting-  for  its  value,  in  which  latter 
couting-ency  he  would  be  general  or  unsecured  creditor 
only  for  the  deficiency.  That  the  bankruptcy  rule  was 
deemed  to  be  founded  upon  equitable  principles.  I  think 
is  demonstrated  by  the  statement  of  Lord  Hardwicke 
in  a  case  alread}'  mentioned, — Bromley  v.  Goodere,  1 
Atk.  77, — where,  after  referring  to  the  act  of  13  Eliz. 
c.  7,  he  said  : 

"It  is  manifest  that  this  act  intended  to  give  the  com- 
missioners an  equitable  jurisdiction  as  well  as  a  legal 
one,  for  they  have  full  power  and  authority  to  take  b}" 
their  discretions  such  order  and  direction  as  they  shall 
think  fit  ;  and  that  this  has  been  the  construction  ever 
since  ;  and  therefore,  when  petitions  have  come  before 
the  chancellor,  he  has  always  proceeded  upon  the 
same  rules  as  he  would  upon  causes  coming  before  him 
upon  the  bill, — 'the  rules  of  equity. 

The  foreg-oing*  reasoning*  renders  it  unnecessary  to 
review  at  leng-th  the  opinion  delivered  by  the  circuit 
court  of  appeals  for  the  Sixth  circuit  in  Bank  v.  Arm- 
strong, 16  U.  S.  App.  465,  8  C.  C.  A.  155,  and  59  Fed. 
372,  to  which  the  court  has  referred,  as  the  conclusions 
announced  by  the  circuit  court  of  appeals  were  rested 
on  the  assumption  that  the  bankruptcy  rule  was  the 
creature  of  an  express  statutory  requirement,  and  that 
to  prevent  a  secured  creditor  from  proving-  for  his  whole 
debt,  as  of  the  time  of  the  insolvency  without  regfard 
to  his  collaterals,  would  deprive  him  of  a  contract 
right,  both  of  which  contentions  have  been  fully  con- 
sidered in  what  I  have  already  said.  Nor  is  the 
case  of  Lewis  v.  U.  S.,  92  U.  S.  68,  also  referred  to 
in  the  opinion  of  the  court  in  the  case  at  bar, 
controlling-  upon  the  question  here  presented.  True, 
it  was  said  in  the  Lewis  Case,  in  passing-,  and  upon 
the  admission  of  counsel  that  "it  is  a  settled  principle 
of  equity  that  a  creditor  holding-  collaterals  is  not  bound 


250  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

to  apply  them  before  enforcing-  his  direct  remedies 
ag-ainst  the  debtor,"  citing-  the  Kellock  and  two  other 
English  and  two  Pennsylvania  cases  involving  the  ques- 
tion of  the  right  of  a  creditor  having-  the  securities  of 
distinct  estates  of  separate  debtors.  But  the  contro- 
versy before  the  court  in  the  Lewis  Case  was  of  this 
latter  character,  being  between  the  United  States,  as 
creditor  of  a  partnership  and  holding- collaterals  belong-' 
ing-  to  the  partnership,  and  the  trustee  in  bankruptcy 
of  the  separate  estates  of  individual  members  of  the 
partnership.  The  government  was  seeking  to  assert 
against  such  separate  estates  a  rig-ht  of  preference  given 
to  it  by  statute.  The  court  decided  that,  as  the  United 
States  had  a  paramount  lien  upon  all  the  assets  of  every 
debtor  for  the  full  satisfaction  of  its  claim,  it  vvas  un- 
affected by  the  bankruptc}'^  statutes,  and  therefore  was 
not  controlled  by  any  provision  found  therein  for  rata- 
ble distribution  or  otherwise.  It  isapparent,  therefore, 
that  the  court,  by  the  quoted  statement,  did  not  decide 
that  a  court  of  equity  would  apply  the  doctrine  there 
set  forth,  where  the  rights  of  the  secured  creditor  were 
limited  and  controlled  by  statute.  If  the  secured  cred- 
itor, who  is  allowed  in  the  case  now  decided  to  disre- 
g-ard  his  security,  and  prove  for  the  whole  amount  of 
his  claim,  had  a  paramount  lien,  not  only  upon  his  col- 
laterals, but  upon  each  and  every  asset  of  the  insolvent 
bank,  the  rule  in  the  Lewis  Case  would  be  apposite. 
But  that  is  not  the  character  of  the  case  now  before  the 
court,  since  here  a  secured  creditor  has  no  paramount 
lien  upon  anything-  but  his  collaterals,  and  is  governed 
in  his  recourse  against  the  general  assets  by  the  re- 
quirement that  there  should  be  a  ratable  distribution. 
As  the  case  before  us  is  to  be  controlled  by  the  act 
of  cong-ress,  it  would  appear  unnecessary  to  advert  to 
state  decisions  construing'  local  statutes  ;  but,  inasmuch 
as  those  decisions  were  referred  to  and  cited  as  author- 
ity, I  will  briefly  notice  them.  They  are  referred  to 
in  the  margin,  and  divide  themselves  into  four  classes  : 
(1).  Those  which  maintain  that,  where  ratable  distri- 
bution is   required,  the  creditor   must  account  for    his. 


B  CAS]  INSOLVENCY  251 

Merrill  v.  National  Bank  of  Jacksonville 

security  before  proving*.^  (2)  Those  cases  which,  on 
the  contrary,  decide  that,  to  allow  the  creditor  to 
prove  for  his  whole  claim  without  deduction  of  security, 
is  not  incompatible  with  ratable  distribution,  and  hold 
that  the  security  need  not  be  taken  into  account." 
(3)  Those  cases  which,  while  seeming-ly  denying-  the 
obligation  of  the  secured  creditor  to  account  for  his 
security,  yet  practically  work  out  a  contrary  result  by 
requiring"  deduction  upon  collaterals  as  collected,  and 
afforded  remedies  to  compel  prompt  realization  of  col- 
laterals.'^ (4)  Those  which  originated  in  purely  local 
statutes,  and  which  hold  that  the  secured  creditor  can 
prove  for  the  whole  amount  without  reference  to  either 
the  bankruptcy  or  the  chancery  rule.^  And  in  the 
marg-in  I  supplement  the  compilation  heretofore  made 
by  a  reference  to  some  state  statutes  and  decisions  re- 

1  Amory  v.  Francis  (1820)  16  Mass.  308  ;  Farnum  v.  Boutelle  (1847) 
13  Mete.  (Mass.)  159;  Vanderveer  t'.  Conover  (1838)  16  N.  J.  Law, 
491  ;  Bell  v.  Fleming's  Ex'rs  (1858)  12  N.  J.  Eq.  13,  25  ;  Whittaker 
V.  Bank  (1894)  52  N.  J.  Eq.  400,  29  Atl.  203  ;  Fields  v.  Creditors  of 
Wheatley  (1853)  1  Sneed,  351  ;  Winston  v.  Eldridge  (1859)  3  Head, 
361  ;  Wurtz  v.  Hart  (1862)  13  Iowa,  515;  Searle  v.  Brumback  (Ohio, 
1862)  4  West.  Law  Month.  330  ;  In  re  Frasch  (1892)  5  Wash.  344,  31 
Pac.  755,  and  32  Pac.  771  ;  National  Union  Bank  v.  National  Mechan- 
ics'Bank  (1895)  80  Md.  371,  30  Atl.  913;  Branch  zy.  Bank  (1896)57 
Kan.  37,  45  Pac.  88  ;  Security  Inv.  Co.  v.  Richmond  Nat.  Bank  (1897) 
58  Kan.  414,  49  Pac.  521. 

2  Findlay  v.  Hosmer  (1817)  2  Conn.  350  ;  Moses  v.  Ranlet  (1822)  2 
N.  H.  488  ;  West  v.  Bank  (1847)  19  Vt.  403  ;  Walker  v.  Barker  (1854) 
26  Vt.  710,  714;  In  re  Bates  (1886)  118  111.  524  9  N.  E.  257;  Furness 
V.  Bank  (1893)  147  111.  570,  35  N.  E.  624  ;  Levy  v.  Bank  (1895)  158  111. 
88,  42  N.  E.  129;  Allen  v.  Danielson  (1887)  15  R.  I.  480,  8  Atl.  705; 
Greene  v.  Bank  (1895)  18  R.  I.  779,  30  Atl.  963  ;  People  v.  E.  Reming- 
ton &  Sons  (1890)  121  N.  Y.  328,  24  N.  E.  793;  Bank  v.  Haug  (1890) 
82  Mich.  607,  47  N.  W.  33;  Kellogg  v.  Miller  (1892)  22  Or.  406,  30 
Pac.  229  ;  Winston  v.  Biggs  (1895)  117  N.  C.  206,  23  S.  E.  316. 

3  In  re  McCune's  Estate  (1882)  76  Mo.  200  ;  State  v.  Nebraska  Sav. 
Bank  (1894)  40  Neb.  342,  58  N.  W.  976;  Jamison  v.  Commission  Co. 
(1894)  59  Ark.  548,  552,  28  S.  W.  35  ;  Philadelphia  Warehouse  Co.  v. 
Anniston  Pipe  Works  (1895)  106  Ala.  357,  18  South.  43  ;  Erie  v.  Lane 
(1896)   22  Colo.  273,  44  Pac.  591. 

4  Shunk's  Appeal  (1845)  2  Pa.  St.  304  ;  Morris  v.  Olwine  (1854)  22 
Pa.  St.  441,  442  ;  Keim's  Appeal  (1856)  27  Pa.  St.  42  ;  Miller's  Appeal 
(1860)  35  Pa.  St.  481;  Patten's  Appeal  (1863)  45  Pa.  St.  151.  And 
see  a  reference  to  the  cases  in  Pennsylvania  in  Boyer's  Appeal 
(1894)  163  Pa.  St.  143,  29  Atl.  1001. 


252  INSOLVENCY  [VOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

ferring-  to  statutes  which  expressly  provide  that  the 
claimants  upon  an  insolvent  estate  can  only  prove  for 
the  balance  due,  after  deduction  of  any  security  held.'* 

Of  course,  for  the  purposes  of  this  case,  only  the 
first  two  classes  of  cases  need  be  considered.  The 
first  class  is  well  represented  by  two  Massachusetts 
cases  :  Amory  v.  Francis,  16  Mass.  308,  and  Farnum 
t'.  Boutelle,  13  Mete.  159.  In  the  first-named  case 
Chief  Justice  Parker  said  (pag-e  310) :  "If  it  were 
not  so,  the  equality  intended  to  be  produced  by  the 
bankrupt  laws  would  be  g"rossly  violated,  and  the 
creditor  holding-  the  pledg-e  would,  in  fact,  have  a 
.g"reater  securit}^  than  that  pledg-e  was  intended  to  g-ive 
him.  For  orig-inally  it  would  have  been  security  only 
for  a  portion  of  the  debt  equal  to  its  value  ;  whereas 
by  proving-  the  whole  debt,  and  holding-  the  pledg-e  for 
the  balance,  it  becomes  security  for  as  much  more  than 
its  value  as  is  the  dividend  which  may  be  received  upon 
the  whole  debt." 

In  the  later  case  Chiee  Justice  Shaw  announced 
the  rule  as  follows  (pag-e  164)  : 

"If  the  mortgag-e  remained  in  force  at  the  time  of 
the  decease  of  the  debtor,  then  it  is  ver}"  clear,  as  well 
upon  principle  as  upon  authority,  that  the  creditors 
cannot  prove  their  debt  without  first  waiving-  their 
mortg-ag-e,  or  in  some  mode  applying-  the  amount  there- 
of to  the  reduction  of  the  debt,  and  then  proving-  only 
for  the  balance.     Amory  v.  Francis,  16  Mass.   308." 

The  second  class  of  cases  may  be  typified  by  the 
case  of  People  v.  K.  Remington  &  Sons,  121  N.  Y. 
328,  24  N.  F.  793,  where  the  conclusion  of  the  court 

5  Indiana:  Combs  v.  Trust  Co.,  146  Ind.  688,  691,46  N.  E.  16. 
Kentucky  :  St.  1894  (Barb.  &  C.  Ed.)  p.  193,  c.  7,  g  74  ;  Bank  v.  Lock- 
ridge,  92  Kv.  472,  18  S.  W.  1.  Massachusetts  :  Act  April  23,  1838,  c. 
163,  -i  3;  Gen.  St.  1860,  c.  118,  ^5  27.  Michigan  :  2  How.  Ann.  St.  p. 
2156,  j;  8824.  Minnesota  :  By  Act  March  8,  1860,  the  security  is 
made  the  primarj^  fund,  to  which  resort  must  be  had  before  a  per- 
sonal judgment  can  be  obtained  against  the  debtor  for  a  deficit. 
Swift  V.  Fletcher,  6  Minn.  550  (Gil.  392).  New  Hampshire  :  Laws 
1862,  c.  2594.  South  Carolina  :  Piester  v.  Piester,  22  S.  C.  146 ; 
Wheat  V.  Dingle,  32  S.  C.  473.  11  S.  E.  394.  Texas  :  Savles'  Civ.  St. 
1897,  art.  83  ;  Acts  1879,  c.  53,  ?;  13  ;  Willis  v.  Holland  (1896  ;  Tex. 
Civ.  App.)  36  S.  W.  329. 


B  CAS]  INSOLVENCY  253 

Merrill  v.  National  Bank  of  Jacksonville 

was  placed  upon  the  ground  that  the  rule  in  bank- 
ruptcy orig-inated  in  an  express  requirement  in  the 
bankrupt  acts  other  than  that  for  a  ratable  distribu- 
tion. The  court,  speaking  throug-h  Gray,  J.,  said 
(page  332,  121  N.  Y.,  and  page  794,  24  N.  K.) : 

''Some  confusion  of  thought  seems  to  be  worked  by 
the  reference  of  the  decision  of  the  question  to  the 
rules  of  law  g-overning-  the  administration  of  estates  in 
bankruptcy  ;  but  there  is  no  warrant  for  any  such  ref- 
erence. The  rules  in  bankruptcy  cases  proceeded 
from  the  express  provisions  of  the  statute,  and  they 
are  not  at  all  controlling"  upon  a  court  administering, 
in  equity,  upon  the  estates  of  insolvent  debtors.  The 
bankruptcy  act  requires  the  creditor  to  g^ive  up  his 
security,  in  order  to  be  entitled  to  prove  his  whole 
debt ;  or,  if  he  retains  it,  he  can  only  prove  for  the 
balance  of  the  debt,  after  deducting  the  value  of  the 
security  held.  The  jurisdiction  in  bankruptcy  is  pecu- 
liar and  special,  and  a  particular  mode  of  administra- 
tion is  prescribed  by  the  act." 

Having"  thus  eliminated  the  bankruptcy  rule,  the  court 
reviewed  the  decisions  in  Mason  t'.  Bogfg"  and  Kellock's 
Case,  and  held  those  cases  to  be  controlling.  The 
Reming-ton  Case,  therefore,  as  well  as  those  of  which 
it  is  a  tvpe,  need  not  be  further  reviewed,  as  the 
fundamental  error  upon  which  they  rest  has  been  fullv 
stated  in  what  I  have  previously  said. 

It  is  necessary,  however,  to  call  attention  to  the  fact 
that  in  the  cases  which  decline  to  apply  the  rule  in 
bankruptcy,  and  refuse  to  enforce  the  provision  for 
ratable  distribution,  there  is  an  entire  want  of  harmony 
as  to  the  time  when  the  rig^hts  of  creditors  are  fixed 
with  respect  to  the  amount  of  the  claim  which  may  be 
proved  against  general  assets;  some  holding  that 
dividends  are  to  be  paid  on  the  amount  due  at  the  date 
of  insolvency,  others  on  the  amount  due  at  the  time  of 
proof,  and  others  upon  the  sum  due  when  dividends  are 
declared.  This  confusion  is  the  necessary  outcome  of 
the  erroneous  premise  upon  which  the  cases  rest.  A 
similar  confusion,  moreover,  I  submit,  is  manifested  bv 


254  INSOLVENCY  [vOL  I 

Merrill  z'.  National  Bank  of  Jacksonville 

the  rule  now  announced  by  the  court;  since,  while  it  is 
avowedly  rested  upon  the  defunct  chancery  rule  exem- 
plified in  Mason  r.  Bog-g- and  the  Kellock  Case,  yet,  in 
effect,  it  fails  to  follow  the  ver}^  rule  upon  which  the 
decision  is  based.  This  is  clear  when  it  is  borne  in 
mind  that  the  chancery  rule  was  decided  in  both  Mason 
V.  Bog"or  and  the  Kellock  Case  to  be  that  the  amount  of 
the  claim  of  the  creditor  was  fixed  b}'  the  date  when 
proof  was  actually  made;  and  yet,  under  the  authority 
of  the  chancery  rule,  and  the  cases  in  question,  the 
court  now  decides  that  the  rights  of  the  secured 
creditor  are  fixed  by  insolvency.  Thus  the  chancery 
rule  is  applied,  and  at  the  same  time  repudiated  in  an 
important  particular,  for  the  grrave  difference  between 
allowing- a  secured  creditor  to  prove  only  for  the  amount 
due  when  proof  was  made,  and  therefore  compelling- 
him  to  account  for  all  collections  realized  on  collaterals 
up  to  that  time,  and  allowing  him,  long-  after  insolvency, 
to  prove,  bv  relation,  as  of  the  date  of  the  insolvenc}', 
and  disregard  the  collections  actually  made,  is  manifest. 
In  this  connection  it  may  not  be  amiss  to  call  attention 
to  the  fact  that,  if  the  bankruptcy  rule  was  applied  in 
the  proof  of  claims,  the  amount  of  the  claim  would  not 
var}',  whether  the  date  of  insolvenc}'  or  the  time  when 
proof  was  made  was  held  to  be  the  date  when  the 
rights  of  the  creditor  in  the  fund  were  fixed. 

Moreover,  I  submit  that  the  propositions  now  adopt- 
ed, which  reject  the  bankruptcy  rule,  rests  on  reason- 
ing which,  if  it  be  logically  applied,  requires  the 
enforcement  of  the  bankruptcy  rule  in  its  integrity. 
It  seems  to  me  it  has  been  shown  by  the  doctrine 
announced  by  Lord  Hardwicke  in  1743  (Bromley  v. 
Goodere,  siif^ra)  that  the  stoppage  of  interest  ©n  the 
claims  of  all  creditors  was  but  an  essential  evolution  of 
the  principle  of  ratable  distribution.  This  stoppage 
of  interest  at  the  period  named  is  now  upheld  by  the 
rule  sanctioned  by  this  court.  This,  then,  takes  the 
provision  of  the  bankruptcy  rule  which  favors  the 
secured  creditor,  and  which  arises  alone  ratable  division, 
and  gives  him  the  benefit  of  it,  while  at  the  same  time 


B  CAS]  INSOLVENCY  255 

Merrill  v.  National  Bank  of  Jacksonville 

rejectino-  the  oblio-ation  to  account,  which  arises  from 
and  depends  on  the  very  principle  of  ratable  distribution 
which  is  in  part  enforced.  To  repeat,  it  strikes  my 
mind  that  the  conclusion  now  announced  is  this:  that 
the  obsolete  chancery  rule  both  applies  and  does  not 
apply,  that  the  bankruptcy  rule  at  the  same  time  does 
not  appl}'  and  does  apply;  the  result  of  this  conflict 
being-  to  so  interpret  the  act  of  congress  as  to  strike 
from  it  the  beneficent  provision  for  equality  of  distri- 
bution among-  g-eneral  creditors. 

Mr.  Justice  Harlan  and  Mr.  Justice  Mckenna, 
concur. 

Mr.  Justice  Gray  dissenting-. 

While  also  unable  to  concur  in  the  opinion  of  the 
majority  of  the  court,  I  prefer  to  rest  my  dissent  upon 
the  effect  of  the  leg-islation  of  cong-ress,  read  in  the 
lig-ht  of  the  Eng-lish  statutes  and  decisions  before  the 
American  Revolution,  and  of  the  judgments  of  the 
courts  of  the  United  States,  without  particularl}' 
considering  the  cases  in  England  in  recent  times,  or 
the  conflicting  decisions  made  in  the  courts  of  the 
several  states  under  local  statute  or  usage  or  upon 
general  theory.  As  the  course  of  reasoning- in  support 
of  this  view  traverses  part  of  the  ground  covered  by 
the  other  dissenting  justices,  I  shall  endeavor  to  state 
it  as  shortly  as  possible. 

The  Knglish  bankrupt  acts  in  force  at  the  time  of 
the  Declaration  of  Independence,  so  far  as  they  touched 
the  distribution  of  a  bankrupt's  estate  among  his 
creditors,  were  the  statute  of  13  KHz.  (1571)  c.  7,  §  2, 
which  directed  the  estate  to  be  applied  to  the  "true 
satisfaction  and  payment  of  the  said  creditors  ;  that  is 
to  say,  to  every  of  the  said  creditors  a  portion,  rate  and 
rate  like,  according  to  the  quantity  of  his  or  their 
debts";  and  the  statute  of  21  Jac.  I.  (1623)  c.  19,  §  8 
(or  section  9),  which  made  more  specific  provisions 
against  allowing  any  creditors,  whether  "having 
security"  or  not,  to  prove   "for  an^^  more  than  a  ratable 


256  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

part  of  their  just  and  due  debts  with  the  other  credi- 
torsof  the  said  bankrupt."  As  appears  on  the  face  of 
this  provision,  the  word  "security"  was  evidently  there 
used,  not  as  including-  a  mortofag-e  or  other  instrument 
executed  by  the  debtor  by  way  of  pledg-ing-  part  of  his 
property  as  collateral  security  for  the  payment  of  a 
debt,  but  merely  as  desig^nating-  a  bond  or  writing- 
which  was  evidence  of  the  debt  itself  as  a  direct  per- 
sonal oblig^ation;  and  the  objects  of  the  provision  would 
appear  to  have  been  to  put  all  debts,  whether  by 
specialty  or  by  simple  contract,  upon  an  equal  footing- 
in  the  ratable  distribution  of  a  bankrupt's  estate,  and 
to  permit  the  real  amount  only  of  any  debt,  and  not 
any  larger  sum  named  in  a  bond  or  other  specialty,  to 
be  proved  in  bankruptcy.  4  Statutes  of  the  Realm. 
539,  1228;  2  Cooke,  Bankr.  Laws  (4th  Ed.)  [18]  [33]  ;  1 
Cooke,  Bankr.  Laws,  119  ;  Bac.  Abr.  "Oblig^ations," 
A  ;  3  Bl.  Comm.  439. 

Neither  of  those  statutes  contained  any  provision 
whatever  for  deducting-  the  value  of  collateral  security 
and  proving-  the  rest  of  the  debt.  Yet  from  the  earli- 
est period  of  which  there  are  any  reported  cases  it  v^-as 
uniformly  held,— without  vouching-  in  any  provision  of 
the  bankrupt  acts  other  than  those  directing-  a  ratable 
distribution  among-  all  the  creditors, — and  had,  long- 
before  the  American  Revolution,  become  the  settled 
practice  in  the  court  of  chancery,  that  a  creditor  could 
not  retain  collateral  security  received  by  him  from  the. 
bankrupt,  and  prove  for  his  whole  debt,  but  must  have 
his  collateral  security  sold,  and  prove  for  the  rest  of 
the  debt  only.  The  authorities  upon  this  point  are 
collected  in  the  opinion  of  Mr.  Justice  White. 

After  the  American  Revolution,  the  provision  of  the 
statute  of  James  I.  was  thrice  reenacted,  with  little 
modification.  St.  5  Geo.  IV.  (1824)  c.  98,  ^  103  ;  6 
Geo.  IV.  (1825)  c.  16,  §  108  ;  12  &  13  Vict.  (1849)  c. 
106,  §  184.  But  the  rule  established  by  the  decisions 
and  practice  of  the  court  of  chancer}'  as  to  the  proof  of 
secured  debts  was  never  expressly  recog-nized  in  any 
of  the  Eng-lish  bankrupt  acts  until  1869,    when  provis- 


I 


B  CAS]  INSOLVENCY  257 

Merrill  v.  National  Bank  of  Jacksonville 

ions  to  that  effect  were  inserted  in  the  statute  of  32  & 
33  Vict.  c.  71,  §  40.  And  there  is  no  trace  of  a  differ- 
ent rule  in  Kngland  in  proceeding's  in  equity  for  the 
distribution  of  the  estate  of  any  insolvent  debtor  or 
corporation  until  more  than  60  years  after  the  Declara- 
tion of  Independence.  Amory  v.  Francis  (1820)  16 
Mass.  308,  311  ;  Greenwood  v.  Taylor  (1830)  1  Russ. 
&  M.  185  ;  Mason  v.  Bogg-  (1837)  2  Mylne  &  C.  443. 
In  1868,  indeed,  the  court  of  chancery  declined  to  apply 
the  bankruptcy  rule  to  proceeding's  under  the  winding- 
up  acts.  Kellock's  Case,  3  Ch.  App.  769.  But  parlia- 
ment, by  the  judicature  acts  of  3  873  and  1875,  applied 
that  rule  to  such  proceedings.  St.  36  &  37  Vict.  c. 
66,  §  25  (1) ;  38  i&  39  Vict.  c.  77,  §  10.  And  Sir 
Geokge  Jessel,  M.  R.,  has  pointed  out  the  absurdity 
of  having"  different  rules  in  the  cases  of  living*  and  of 
dead  bankrupts.  In  re  Hopkins  (1881)  18  Ch.  Div. 
370,  377. 

The  first  bankrupt  act  of  the  United  States,  enacted 
in  1800,  was  in  great  part  copied  from  the  earlier  bank- 
rupt acts  of  E^ngland,  and  condensed  the  provisions 
above  mentioned  of  the  statutes  of  Elizabeth  and  of 
James  I.  in  this  form  :  "In  the  distribution  of  the 
bankrupt's  effects,  there  shall  be  paid  to  every  of  the 
creditors  a  portion-rate,  according  to  the  amount  of 
their  respective  debts,  so  that  every  creditor  having- 
security  for  his  debt  by  judgment,  statute,  recog-ni- 
zance  or  specialty,  or  having  an  attachment  under  any 
of  the  laws  of  the  individual  states,  or  of  the  United 
States,  on  the  estate  of  such  bankrupt  (provided  there 
be  no  execution  executed  upon  any  of  the  real  or  per- 
sonal estate  of  such  bankrupt,  before  the  time  he  or  she 
became  bankrupts),  shall  not  be  relieved  upon  any  such 
judgment,  statute,  recognizance,  specialty  or  attach- 
ment, for  more  than  a  ratable  part  of  his  debt  with  the 
other  creditors  of  the  bankrupt."  Act  April  4,  1800, 
c.  19,  §  31  (2  Stat.  30).  That  provision  must  have  re- 
ceived the  same  construction  that  had  been  given  by 
the  English  judg-es  to  the  statutes  therein  reenacted. 
Tucker   r.    Oxley  (1809)    5    Cranch,    34,  42  ;  Scott  r. 

B  CAS— 17 


258  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

Armstrong  (1892)  146  U.  S.  499,  511,  13  Sup.  Ct.  148. 

The  bankrupt  act  of  1841,  which  is  well  known  to 
have  been  drafted  to  Mr.  Justice  Story,  omitted  that 
section  and  made  no  specific  provision  whatever  as  to 
the  proof  of  secured  debts,  but  simply  provided  that 
"all  creditors  comingf  in  and  proving- their  debts  under 
such  bankruptcy,  in  the  manner  hereinafter  pre- 
scribed, the  same  being-  bona  fide  debts  shall  be  entitled 
to  share  in  the  bankrupt's  property-  and  effects,7^ro  rata, 
without  any  priority  or  preference  whatsoever,  except 
only  for  debts  due  by  such  bankrupt  to  the  United 
States,  and  for  all  debts  due  by  him  to  persons  who, 
by  the  laws  of  the  United  States,  have  a  preference,  in 
consequence  of  having-  paid  monej^s  as  his  sureties, 
which  shall  be  first  paid  out  of  the  assets."  Act  Aug-. 
19,  1841,  c.  9,  §  5  (5  Stat.  444). 

Yet  Mr.  Justice  Story,  both  in  the  circuit  court 
and  in  this  court,  laid  it  down  as  an  undoubted 
rule  that  a  secured  creditor  could  prove  only  for  the 
rest  of  the  debt  after  deducting-  the  value  of  the 
security  given  him  by  the  bankrupt  himself  of  his 
■own  property.  In  re  Babcock  (1844)  3  Story,  393,. 
399,  400,  Fed.  Cas.  No.  696;  In  re  Christy  (1845)  3 
How.  292,   315. 

The  omission  by  that  eminent  jurist  when  framing- 
the  act  of  1841,  of  all  specific  provisions  on  the  subject 
as  unnecessary,  and  his  repeated  judicial  declarations, 
after  he  had  been  habitually  administering-  that  act  for 
three  or  four  3"ears,  recog-nizing-  that  rule  as  still  in 
force,  compel  the  inference  that  a  g-eneral  enactment 
"for  the  ratable  distribution  of  the  estate  of  an  insolvent 
among-  all  the  creditors  had  the  effect  of  preventing- 
:any  individual  creditor,  while  retaining-  collateral 
security  on  part  of  the  estate,  from  proving-  for  his 
whole  debt. 

In  1864,  cong-ress.  in  the  first  national  bank  act,  after 
providing-  for  the  appointment  of  a  receiver  with  power 
to  convert  the  assets  of  any  insolvent  national  bank 
into  money,  and  pay  it  to  the  treasurer  of  the  United 
States,  subject  to  the  order  of  the  comptroller  of  the 


B  CAS]  INSOLVENCY  259 

Merrill  v.  National  Bank  of  Jacksonville 

currency,  further  provided  that:  "Prom  time  to  time 
the  comptroller,  after  full  provision  shall  have  been 
first  made  for  refunding-  to  the  United  States  any  such 
deficiency  in  redeeming- the  notes  of  such  association  as 
is  mentioned  in  this  act,  shall  make  a  ratable  dividend 
of  the  money  so  paid  over  to  him  by  such  receiver  on 
all  such  claims  as  may  have  been  proved  to  his  satisfac- 
tion or  adjudicated  in  a  court  of  competent  jurisdic- 
tion."    Act.  June  3,  1864,  c.  106,  §  50  (13  Stat.    115). 

The  words  of  this  act  requiring-  "a  ratable  dividend" 
to  be  paid  "on  all  claims"  proved  or  adjudicated,  are 
equivalent  to  the  words  of  the  last  preceding-  bank- 
rupt act,  directing-  that  "all  creditors  coming-  in  and 
proving-  their  debts"  "shall  be  entitled  to  share" 
in  the  estate  ""pro  rata,  without  an}^  priority  or 
preference  whatsoever";  and,  in  view  of  the  judicial 
construction  which  had  been  given  to  that  act,  may 
reasonably  be  considered  as  having-  been  intended  b}" 
cong-ress  to  have  the  same  effect  of  preventing- a  credi- 
tor, secured  on  part  of  the  estate,  from  proving-  his 
wholedebt  without  relinquishing-  or  applying-  the  secur- 
ity, althoug-h  neither  act  specifically  so  provided. 

If  such  was  the  rule  under  the  national  bank  act  of 
1864,  it  could  not  be  affected,  as  to  national  banks,  by 
the  express  affirmance  of  the  rule  in  the  bankrupt  act  of 
1867,  or  by  the  re-enactment  of  the  provisions  of  each 
of  these  tVk'o  acts  in  the  Revised  Statutes.  And  the 
extension  of  the  bankrupt  act  of  1867  to  "moneyed  busi- 
ness or  commercial  corporations  and  joint-stock  com- 
panies" increases  the  improbability  that  congress  in- 
tended banking-  associations  to  be  gfoverued  by  a  differ- 
ent rule  from  that  g-overning-  other  private  corpora- 
tions, as  well  as  natural  persons,  in  reg-ard  to  the  effect 
which  a  creditor's  holding-  collateral  security  should 
have  upon  the  sum  to  be  proved  by  him  ag-ainstan  insol- 
vent estate.  Act  March  2,  1867,  c.  176,  B  20,  37  (14 
Stat.  526,  535);  Rev.  St.  §§  5075,  5236. 

Reliance  has  been  placed  upon  the  remark  of  Mr. 
Justice  Swayne  in  Lewis  v.  U.  S.,  92  U.  S.  618, 
623,  that  "it  is  a  settled  principle  in  equity  that  a  cred- 


260  INSOLVENCY  [vOL  I 

Merrill  v.  National  Bank  of  Jacksonville 

itor  holding-  collaterals  is  not  bound  to  apply  them 
before  enforcing-  his  direct  remedies  ag-ainst  the  debt- 
or." But  he  added,  "This  is  admitted,"  so  that  it  is 
evident  that  the  point  was  not  controverted  by  counsel, 
or  much  considered  by  the  court.  Nor  was  it  neces- 
sary to  the  decision,  which  had  nothing-  to  do  with  the 
right  of  an  individual  creditor,  holding  security  upon 
the  separate  property  of  the  debtor,  to  prove  ag-ainst 
his  estate  in  bankruptcy,  but  simply  affirmed  the  right 
of  the  United  States,  holding- a  debt  against  an  I^ng-- 
lish  partnership,  to  prove  the  whole  amount  of  the 
debt  against  one  of  the  partners,  an  American,  in  pro- 
ceeding's in  bankruptcy  here  under  the  act  of  1867, 
without  surrendering- or  accounting  for  collateral  secu- 
rity g-iven  to  the  United  States  by  the  partnership. 
The  United  States  w^ere  not  bound  by  the  bankrupt 
acts,  nor  subject  to  the  rule  of  a  ratable  distribution, 
but  were  entitled  to  preference  over  all  other  creditors. 
U.  S.  V.  Fisher,  2  Cranch,  358;  Harrison  v.  Sterry,  5 
Cranch,  289;  U.  S.  v.  State  Bank,  6  Pet.  29;  U.  S. 
V.  Herron,  20  Wall.  251.  And,  even  as  to  a  private 
creditor,  it  has  aUvays  been  held  that  he  is  obliged  to 
account  for  such  securities  only  a«  he  holds  from  the 
debtor  ag-ainst  whose  estate  he  seeks  to  prove  ;  and 
that  a  creditor  proving-  ag-ainst  the  estate  of  a  partner- 
ship is  not  bound  to  account  for  security  given  to  him 
by  one  partner,  nor  a  creditor  proving-  ag-ainst  tha 
estate  of  one  partner  to  account  for  security  g-iven  him 
by  the  partnership.  Ex  parte  Peacock  (1825)  2  Glvn  & 
J.  27;  In  re  Plummer  (1841)  1  Phil.  Ch.  56  ;  Roffe  v. 
Flower  (1866)  L.  R.  1  P.  C.  27,  46  ;  In  re  Babcock,  3 
Story,  393,  400,  Fed.  Cas.  No.  696.  To  require  a 
creditor,  before  proving-  ag-ainst  the  estate  of  one  part- 
ner, to  surrender  to  the  assignee  of  that  estate  security 
held  from  the  partnership,  would  be  to  add  to  the 
separate  estate  property  which  should  go  to  the  estate 
of  the  partnership.  The  ground  and  the  limits  of  the 
rule  in  bankruptcy  were  clearly  stated  by  Lord  Chan- 
cellor Lyndhurst  in  Plummer's  Case,  above  cited, 
in  which  a  partnership  creditor  was  allowed  to  prove  a 


B  CAS]  INSOLVENCY  261 

Merrill  v.  National  Bank  of  Jacksonville 

partnership  debt  ag-ainst  the  separate  estate  of  each 
partner  without  surrendering-  or  realizing-  security 
held  by  him  from  the  partnership.  The  lord  chancel- 
lor said  :  "Now,  what  are  the  principles  applicable 
to  cases  of  this  kind?  If  a  creditor  of  a  bankrupt 
holds  a  security  on  part  of  the  bankrupt's  estate,  he 
is  not  entitled  to  prove  his  debt  under  the  commission, 
without  giving-  up  or  realizing-  his  security.  For  the 
principle  of  the  bankrupt  laws  is  that  all  creditors  are 
to  be  put  on  an  equal  footing- ;  and  therefore,  if  a  cred- 
itor chooses  to  prove  under  the  commission,  he  must 
sell  or  surrender  whatever  property  he  holds  belong-- 
ing  to  the  bankrupt.  But,  if  he  has  a  security  on  the 
estate  of  a  third  person,  that  principle  does  not  apply. 
He  is,  in  that  case,  entitled  to  prove  for  the  whole 
amount  of  his  debt,  and  also  to  realize  the  security, 
provided  he  does  not  altog-ether  receive  more  than 
twenty  shillings  in  the  pound.  That  is  the  g-round  on 
which  the  principle  is  established.  It  is  unnecessary 
to  cite  authorities  for  it,  as  it  is  too  clearly  settled  to 
be  disputed  ;  but  I  may  mention  £x  -parte  Bennet,  2 
Atk.  527,  Ex  -parte  Parr,  1  Rose,  76,  and  Ex  parte 
Goodman,  3  Madd.  373,  in  which  it  has  been  laid  down. 
The  next  point  is  this.  In  administration  under  bank- 
ruptcy the  joint  estate  and  the  separate  estate  are  con- 
sidered as  distinct  estates,  and  accordingly  it  has  been 
held  that  a  joint  creditor,  having-  a  security  upon  the 
separate  estate,  is  entitled  to  prove  ag-ainst  the  joint 
estate  without  g-iving-  up  his  security,  on  the  ground 
that  it  is  a  different  estate.  That  was  the  principle 
upon  which  Ex  parte  Peacock  proceeded,  and  that  case 
was  decided  first  by  Sir  John  Leach  and  afterwards 
by  Lord  Kldon,  and  has  since  been  followed  in  Ex 
parte  Bowden,  1  Deac.  &  C.  135.  Now,  this  case  is 
merely  the  converse  of  that,  and  the  same  principle 
applies  to  it."     1  Phil.  Ch.  59,  60. 

This  court,  under  the  existing-  national  bank  act, 
approving-  and  following  the  example  of  the  Eng-lish 
courts  under  the  statute  of  13  Elizabeth,  above  cited, 
has  allowed   creditors    to  set   off,  against  their  claims 


262  INSOLVENCY  [vOL  I 

Stapylton  v.  Stockton 

on  the  estate,  debts  due  from  them  to  the  debtor  whose 
estate  is  in  course  of  distribution,  althoug-h  the  statute 
in  question  in  either  case  contained  no  provision 
directing-  or  permitting-  a  set-off.  Scott  v.  Armstrong-, 
146  U.  S.  499,  511,  13  Sup.  Ct.  148.  In  g-iving-  effect 
to  a  statute  which  simply  directs  an  equal  and  ratable 
distribution  of  a  debtor's  estate  among"  all  creditors, 
without  saying-  anything-  about  either  collateral  security 
or  set-off,  there  would  seem  to  be  quite  as  much 
g-round  for  requiring-  each  creditor  to  account  for  his 
collateral  security,  for  the  benefit  of  all  the  creditors, 
as  for  allowing-  him  the  benefit  of  a  set-off,  to  their 
detriment. 

For  the  reasons  thus  indicated,  I  cannot  avoid  the 
conclusion  that  under  every  act  of  cong-ress  directing- 
the  ratable  distribution  among-  all  creditors  of  the 
estate  of  an  insolvent  person  or  corporation,  and  making- 
no  special  provision  as  to  secured  creditors  an  individ- 
ual creditor,  holding-  collateral  security  from  the 
debtor  on  part  of  the  estate  in  course  of  administration, 
is  not  entitled  to  a  dividend  upon  the  whole  of  his  debt 
without  releasing-  the  security  or  deducting  its  value  ; 
and  that,  therefore,  the  judg-ment  of  the  circuit  court 
of  appeals  should  be  reversed. 


STAPYIvTON 

V. 

Stockton  et  al. 

{Circuit  Court  of  Appeals,  Fifth  Circuit,Ja7i.  j,  iSgg.) 

Power  of  Insolvent  National  Bank  to  Transfer  Property.* — Section 
5242  of  the  Revised  Statutes  of  the  United  States  does  not  make  it 
unlawful  for  a  national  bank,  acting  in  good  faith, to  borrow  money 
and  give  security  for  the  same  after  it  is  legally  in  contemplation  of 
insolvency  ;  and,  where  the  question  is  wholly  between  other  credit- 

*See  note  at  end  of  case. 


B  CAS]  INSOLVENCY  263 

Stapylton  v.  Stockton 

ors  who  have  received  due  advantag-e  from  the  loan,  the  fact  that  the 
lender  is  allo%Yed  to  retain  a  portion  of  the  money  so  borrowed  as 
securitj'  for  an  antecedent  debt  dtie  from  the  bank  to  him  does  not 
vitiate  the  whole  transaction. 

Same — Authority  of  President — Validity  of  Unauthorized  Deed. — 
The  president  of  a  natural  bank,  who  had  exclusive  charg-e  of  its 
affairs,  and  owned  a  controlling  interest,  executed  a  deed  to 
certain  property  of  the  bank,  under  what  purported  to  be  a  certified 
copy  from  the  minutes  of  the  board  of  directors,  to  secure  an  ad- 
vance to  the  bank,  made  in  g-ood  faith,  when  the  bank  was  legally 
in  contemplation  of  insolvency.  The  deed  was  recorded  on  the  day 
upon  which  the  bank  closed  its  doors.  It  did  not  appear  from  the 
minutes  of  the  board  of  directors  that  the  president  had  any 
authority  to  execute  the  deed.  Held,  that  the  deed  was  valid  as  an 
equitable  mortg-ag-e,  and  sufficient  to  bind  the  bank's  receiver. 

Appeal  by  receiver  from  the  Circuit  Court  of  the 
United  States  for  the  Southern  District  of  Florida. 
Ajfirmed. 

F.  P.  Flcuih/o  and  F.  P.  Fleming-,  Jr.,iov  appellant. 
C.  D.  Rinehart  and   W.  H.  Baker,  for  appellees. 

Before  Pardee  and  McCormick,  Circuit  Judg-es, 
and, Parlance,   District  Judo-e. 

McCormick,  Circuit  Judo-e.  In  the  opening-  of  the 
brief  of  counsel  for  the  appellees  there  is  a  statement 
of  this  case,  which,  on  examination,  we 
have  found  to  be  correct  and  admirable. 
It  is  as  follows  :  This  is  a  suit  broug-ht  by  the  receiver 
of  the  Merchants'  National  Bank  of  Ocala,  an  insolvent 
national  bank,  to  have  vacated  and  set  aside  certain 
transfers  of  real  and  personal  property  made  by  the 
Ocala  bank  before  the  bank  went  into  the  hands  of 
the  receiver,  upon  the  g-round  that  these  transfers  were 
made  by  the  Ocala  bank  contrary  to  the  provisions  of 
section  5242  of  the  Revised  Statutes.  The  facts  out  of 
which  this  controversy  arose  may  be  briefly  stated  as 
follows  :  The  defendant  Clarence  B.  Collins  was  in 
1896  state  treasurer  of  Florida,  and  had  a  larg-e  amount 
of  state  funds  deposited  with  the  Ocala  bank,  estimated 
at  about  S42,000.  About  October  18th  of  that  year, 
R.  B.  McConnell,  who  was  president  of  the  Ocala 
bank,  notified  Collins  that  the  bank  would  have  to  have 
more   money,    or   suspend.      Collins   telegraphed    the 


264  INSOLVENCY  [vOL  I 

Stapylton  v.  Stockton 

defendant  Stockton,  who  was  president  of  the  National 
Bank  of  the  State  of  Florida,  of  Jacksonville,  Fla. ,  to 
meet  him  and  McConnell  at  Jacksonville  (Stockton's 
home).  On  the  18th  they  met  at  Stockton's  house. 
The  situation  was  discussed,  and  Stockton,  on  behalf 
of  his  bank,  refused  to  advance  McConnell  or  the 
Ocala  bank  any  money.  McConnell  then  made  a 
statement  of  the  financial  condition  of  his  bank,  which 
statement  was  accepted  as  true  by  the  others.  This 
statement  was  that  the  Ocala  bank  owed  895,000  to 
depositors,  of  which  $42,000  was  due  to  Collins 
leaving-  $53,000  due  to  others,  and  of  this  about  $30,- 
000  was  under  his  personal  control,  in  one  way  or 
another,  and  would  not  be  drawn  ;  that  he  had  $12,000 
in  cash  assets,  and  only  owed  $20,000  in  bills  payable, 
which  were  amply  secured  ;  that  the  assets  of  the  bank 
were  double  the  amount  of  all  of  its  liabilities.  The 
reason  assig-ned  by  McConnell  for  the  condition  of  the 
bank  was  the  gfeneral  financial  depression,  the  uncer- 
tainty attending-  the  approaching-  presidential  election, 
the  difficulty  in  making-  collections,  and  the  spreading- 
of  malicious  and  false  reports  about  him  and  the  bank 
by  persons  maliciousl}^  disposed  towards  him  and  his 
bank.  Finally  an  ag-reement  was  entered  into  between 
Collins  and  McConnell,  acting-  on  behalf  of  the  Ocala 
bank.  Collins  ag-reed  to  advance  to  the  Ocala  bank  S15,- 
000,  throug-h  Stockton  and  the  Jacksonville  bank  ;  and 
McConnell,  for  the  Ocala  bank,  was  to  execute  notes 
to  the  Jacksonville  bank  for  this  sum.  The  Ocala 
bank  was  to  transfer,  to  Stockton  and  the  Jacksonville 
bank,  and  did  so  transfer,  certain  security.  These 
securities  were  of  three  classes  :  (1)  Bills  receivable, 
and  other  like  collateral  ;  (2)  the  equity  of  the  Ocala 
bank  in  certain  collateral  already  hypothecated  with 
the  National  City  Bank  of  New  York  City  ;  and  (3) 
the  city  lot  in  Ocala  upon  which  the  bank  building-  of 
the  Ocala  bank  was  located.  This  lot  was  conveyed 
by  warranty  deed  to  John  N.  C.  Stockton,  the  deed 
being-  absolute  on  its  face.  The  indebtedness  secured 
may  in  like  manner  be  divided  into  three  classes  :     (1) 


B  CAS]  INSOLVENCY  265 

Stapylton  v.  Stockton 

The  $15,000  advanced  on  or  about  October  18,  1896  ; 
(2)  a  note  for  822,000  g-iven  to  represent  that  much  of 
the  deposit  of  $42,000  heretofore  mentioned  ;  (3)  what- 
ever balance  in  open  account  there  mig^ht  be  then  due 
Collins.  At  the  time  these  transactions  were  entered 
into,  Stockton  and  Collins  believed  the  Ocala  bank  to 
be  solvent,  although  the  after  developments  tended  to 
show^  that  McConnell  must  have  known  that  the  bank 
was  insolvent.  The  testimou}^  introduced  by  the  com- 
plainant (appellant  here)  throug-h  the  witness  Redding^, 
showing-  that  McConnell  kept  for  the  bank  two  sets  of 
books  ;  one  set  being-  the  usual  set  kept  by  the  bank, 
and  the  other  set,  known  as  the  "Reconcilement  Book," 
for  the  private  information  of  himself.  In  this  recon- 
cilement book  he  kept  the  items  that  from  time  to  time 
should  have  been  charg-ed  to  his  bank's  account  with 
its  correspondents,  and  items  that  should  have  been 
credited  to  his  correspondents.  In  the  statements  of 
the  condition  of  the  Ocala  bank  made  to  Stockton  and 
Collins,  McConnell  did  not  take  his  fig-ures  from  his 
reconcilement  book,  but  g-ave  a  set  of  fig-ures  at  that 
time  useful  to  his  purpose.  Fifteen  thousand  dollars, 
on  the  faith  of  these  collaterals,  was  loaned  to  the 
Ocala  bank  by  Collins,  and  received  by  that  bank. 
Afterwards,  on  January  14,  1897,  the  Ocala  bank 
closed  its  doors,  and  subsequently  the  complainant  w^as 
appointed  by  the  comptroller  of  the  currency  its 
receiver.  The  deed  to  the  bank  building-  and  lot  w^as 
recorded  January  14,  1897  ;  an  effort  having-  been  made 
on  the  13th  to  have  the  deed  recorded.  There  was  no 
agreement  between  the  parties  not  to  record  the  deed, 
or  to  withhold  it  from  record.  The  deed  of  conveyance 
was  executed  by  McConnell  as  president  of  the  Ocala 
bank,  under  what  purported  to  be  a  certified  copy  from 
the  minutes  of  the  board  of  directors.  The  defendants 
when  they  parted  with  their  money  relied  upon  this 
resolution  as  being-  true  and  worthy  of  full  confidence. 
The  complainant  proved  that  no  such  resolution  ap- 
peared upon  the  minute  book  of  the  bank,  and,  by  the 
testimonv  of  several  directors,  that  no  such  resolution 


266  INSOLVENCY  [vol  I 

Stapylton  v.  Stockton 

had  ever  been  passed.  McConnell  had  committed 
suicide  in  the  time  between  the  failure  of  the  Ocala 
bank  and  the  filing-  of  the  bill  in  this  case.  The  tes- 
timony of  all  the  directors  examined  showed  that  Mc- 
Connell was  the  owner  of  a  controlling"  interest  in  the 
bank,  and  that  the  manag-ement  of  its  affairs  was  exclu- 
sively under  his  immediate  control.  The  directors 
knew  nothing  of  the  business  of  the  bank.  No  meet- 
ing's of  directors  were  ever  held, except  at  longr  intervals; 
and  then  such  meetings  were  only  formal,  and  simply 
ratified  such  action  of  the  president  as  he  deemed  advisa- 
ble, and  passed  such  resolutions  as  he  wished  passed. 
By  consent  and  stipulation  of  the  parties  to  the  suit, 
while  the  bill  was  pending,  and  before  final  decree, 
the  real  estate  was  sold,  and  the  amount  of  the  pur- 
chase price,  $8,000,  was  deposited  in  the  regfistry  of  the 
court.  This  stipulation  provided  that  all  questions 
concerning-  the  ownership  and  disposition  of  the  money 
should  be  settled  in  this  suit.  Some  moneys  ($1,- 
949.23)  were,  under  a  similar  stipulation,  deposited  in 
the  registry  of  the  court,  which  moneys  arose  out  of  col- 
lections made  out  of  the  equity  in  the  collateral  hypoth- 
ecated with  the  National  City  Bank  of  New  York  City. 
The  cause  coming  on  to  be  heard  on  final  hearing-,  the 
lower  court  adjudged  (1)  that  the  attempt  to  secure  the 
822,000  note  and  open  account  were  void  ;  (2)  that  the 
defendants  were  entitled  to  the  benefit  of  all  the  secu- 
rity, including  the  mortg-ag-e  on  the  bank  building  and 
lot  (then  represented  by  deposit  in  the  regfistry),  until 
the  full  sum  of  $15,000,  with  interest,  had  been  paid, 
including  in  such  payment  all  dividends  ;  (3)  that  an  ac- 
counting of  the  collateral  held  by  the  defendants  should 
be  had.  By  this  decree  the  complianant  felt  aggrieved, 
and  appealed  to  this  court,  and  assig-ns  as  error  the 
entry  of  such  final  decree,  and  more  specifically  the 
allowing-  of  any  lien  upon  either  of  the  three  classes  of 
security  for  the  payment  of  the  notes  for  $15,000. 

The  assig-nment    of   errors,  with  11    specifications^ 
presents  two  questions:  (1)  Was  it  competent  for  the 


B  CAS]  INSOLVENCY  267 

Stapylton  v.  Stockton 

bank  to  secure  the  $15,000  advanced  b}'  Collins  at  the 
time  the  security  was  g-iven  ?  (2.)  Was  the  secu- 
rity attempted  to  be  g-iven  on  the  real  property 
sufficient  to  bind  the  receiver?  The  circuit  court 
answered  both  of  these  questions  in  the  affirmative. 
The  receiver  insists  that  this  ruling-  was  erroneous, 
and,  with  regard  to  the  first  question,  founds  his  con- 
tention on  section  5242  of  the  Revised  Statutes,  which 
reads  as  follows: 

"All  transfers  of  the  notes,  bonds,  bills-of-exchange, 
or  other  evidences  of  debt  owing  to  any  national  bank- 
ing association,  or  of  deposits  to  its  credit;  all  assign- 
ments of  mortgages,  sureties  on  real  estate,  or  of 
judgements  or  decrees  in  its  favor;  all  deposits  of  money, 
bullion,  or  other  valuable  thing  for  its  use,  or  for  the 
use  of  any  of  its  shoreholders  or  creditors;  and  all  pay- 
ments of  money  to  either,  made  after  the  commission  of 
an  act  of  in  solvency,  or  in  contemplation  thereof,  made 
with  a  view  to  prevent  the  application  of  its  assets  in  a 
manner  prescribed  by  this  chapter,  or  with  a  view  to 
the  preference    of    one  creditor  to  another,    except  in 

payment  of   its  circulating    notes,  shall  be  utterly  null 

d*  J       ^     ^     *   ' ' 
void. 

It  could  hardly  be  contended  b)'  counsel  for  the 
appellees  that  at  the  time  this  advance  was  made  to 
the  bank  the  president  had  any  reasonable  expectation 
of  being  able  to  extricate  it  from  its  difficulties. 
And  if,  in  charity,  we  should  concede  that  he  had 
persuaded  himself  to  believe  that  this  advance  would 
enable  him  to  regain  and  maintain  the  credit  of 
his  bank,  he  must,  as  Judge  Wallace  said  in 
Roberts  v.  Hill,  24  Fed.  571,  have  taken  counsel  of 
his  hopes,  and  not  of  his  judgment.  It  being  thus 
reasonably  apparent  to  the  officers  of  the  bank  that 
it  must  presently  be  unable  to  meet  its  obliga- 
tions, it  will  be  conceded  that  the  bank  was  legally  in 
contemplation  of  insolvency  when  this  advance  of 
$15,000  was  made  to  it  by  Collins.  The  proof,  we 
think,  shows  that  Collins  and   Stockton   relied  on  the 


268  INSOLVENCY  [vol  I 

Stapylton  v.  Stockton 

represeutations  made   by  the   president    of  the  bank, 

and   in  gfood    faith    acted    thereon.      Those 

PoHfr  of  Insolvent  representations,  if  they  had  been  true,  were 

National  Hank  to  ^  ,,  rr     •        i    i        •        j'fj_i        ii'r 

Transfer  Property,  reasonably  suiiicient  to  justiry  the  beliet  on 
the  part  of  Collins  and  Stockton  that  the 
bank,  thoug-h  temporarily  in  difficulty,  was  in  fact 
solvent,  and,  with  the  aid  asked,  mig-ht  overcome  its 
embarrassments.  In  such  circumstances  it  was  not 
unlawful  for  the  bank  to  seek,  or  for  others  to  extend, 
help.  It  would  indeed  be  difficult  for  a  bank  ever  to 
borrow  money,  if  the  mere  fact  that  it  needed  to  borrow 
money  put  all  who  were  able  and  willing- to  aid  it  upon 
notice  that  it  was  in  contemplation  of  insolvency,  in 
such  a  sense  and  to  such  an  extent  as  to  deprive  it  of 
capacity  to  bind  itself,  and  them  of  capacity  to  take 
security  from  it.  There  is  certainly  nothing-  in  the 
statute  to  support  this  view.  It  forbids  the  transfer  of 
securities  made  with  a  view  to  prevent  the  application 
of  its  assets  in  the  manner  prescribed  by  law,  or  vf  ith 
a  view  to  the  preference  of  one  creditor  to  another, 
with  a  named  exception.  As  to  this  $15,000  advance, 
it  cannot  reasonably  be  said  that  it  g-ave  Collins  any  pref- 
erence, or  that  it  was  made  with  a  view  to  obtain  for 
him  a  preference  in  reference  to  it.  He  paid  out  the 
money.  It  went  into  the  bank.  Not  a  dollar  of  it,  so 
far  as  the  record  shows,  w^enttoany  preferred  creditor. 
It  was  used,  and  doubtless  all  used  up,  in  the  reg-ular 
operations  of  the  bank.  For  this  advance  he  took 
security,  which  at  the. time  did  not  appear  to  be,  and 
which  is  proved  not  to  have  been,  excessive, — certainly 
not  beyond  that  reasonable  marg-in  of  surplus  which 
safe  investments  require.  As  a  part  of  this  transaction, 
it  was  provided  that  this  reasonable  amount  of  surplus 
in  the  security  should  be  held  by  the  party  making 
the  desired  and  necessary  advance  as  security  for  an 
antecedent  debt  due  from  the  bank  to  him.  This  part 
of  the  transaction  did  violate  the  statute,  and  was  void. 
The  appellant  contends  that,  being-  void  as  to  this  part, 
it  cannot  be  held  g-ood  as  to  the  advance  at  that  time 
received  by  the  bank.     He  supports  his  contention  with 


! 


B  CAS]  INSOLVENCY  269 

Stapylton  v.  Stockton 

this  extract   from  the   opinion  of  Judge   Wallace  in 
Armstrong-  i\  Bank,  41  Fed.  234: 

"If  the  sending-  of  the  securities  had  resulted,  either 
in  consequence  of  a  subsequent  express  contract,  or  in 
consequence  of  any  implication  from  the  nature  of  the 
transaction,  in  g-ivingf  the  defendant  a  lien  for  the  ante- 
cedent indebtedness  of  the  Fidelity  Bank,  it  is  extremely 
doubtful  whether  the  transaction  could  be  upheld. 
The  cases  of  Bank  v.  Colby,  21  Wall.  609,  and  Bank  v. 
Butler,  129  U.  S.  223,  9  Sup.  Ct.  281,  take  a  view  of 
the  statute  which  sug-g-ests  that  no  preference  can  be 
obtained  by  one  creditor  of  a  national  bank  over  another, 
after  the  bank  has  become  insolvent,  whether  obtained 
with  the  consent  of,  or  by  adversary  proceeding's  ag-ainst, 
the  bank,  and  whether  the  creditor  has  or  has  not  any 
reason  to  suppose  the  bank  to  be  insolvent  at  the  time." 

In  the  same  opinion  we  find  this  lang^uag^e  : 

"The  statute  is  directed  to  a  preference,  not  to  the 
g-iving-  of  security  w^hen  a  debt  is  created  ;  and  if  the 
transaction  be  free  from  fraud  in  fact,  and  is  intended 
merely  to  adequately  protect  a  loan  made  at  the  time, 
the  creditor  can  retain  property  transferred  to  secure 
such  loan  until  the  debt  is  paid,  even  thoug-h  the  debtor 
is  insolvent,  and  the  creditor  has  reason  at  the  time  to 
believe  that  to  be  the  fact." 

We  have  carefully  examined  the  cases  of  Bank  v. 
Colby  and  Bank  v.  Butler,  supra,  and  find  that  they 
both  relate  wholly  to  antecedent  debts.  And,  as  we 
construe  these  cases  and  the  case  of  Armstrong-  v.  Bank, 
they  do  not  support  the  contention  of  the  appellant  in 
this  case,  and  are  not  inconsistent  with  the  ruling-  of 
the  circuit  court.  There  is  no  question  in  this  case  as 
to  the  lien  in  favor  of  the  United  States  on  all  the  se- 
curities of  the  bank  to  protect  its  circulation.  The 
question  is  one  wholly  between  other  creditors.  And 
it  appears  to  us  inequitable  to  hold  that  other  creditors, 
who  must  be  presumed  to  have  received  their  due  ad- 
vantag-e  from  the  advance  of  the  $15,000  made  by  Col- 
lins, should  be  suffered  to  keep  that  advantag-e,  and  to 
require  him  to  surrender  security  which  he  in  g-ood 
faith  took  at  the  time  he  made  the  advance. 


270  INSOLVENCY  [vOL  I 

Stapylton  v.  Stocktou 

As  to  the  second  contention  of  the  appellant,  we 
think  the  deed  g-iven  by  the  president  of  the  bank 
must  be  held  to  be  good  as  a  pledg-e  for  the  repayment 
of  the  money  received  thereon  at  the  time 
orTr'e'^dVilS  ^he  pledo-e  was  given.  There  is  nothing 
liditTorinan-       ip  the  statutes  of  the  United  States  which 

tliori7c(l  Deed.  -,..,.  -  ,.  ,. 

forbids  this  transfer  being  made  in  the 
manner  that  it  was  made,  if  the  directors  of  the  bank 
had  in  fact  authorized  it.  There  was  nothing  in  the 
transaction,  therefore,  to  charge  Collins  with  notice 
that  the  president  was  not  authorized  to  convey  the 
real  estate,  or  that  the  president  was  not  authorized  to 
certify  to  a  resolution  purporting  to  be  taken  from  the 
minutes  of  the  proceedings  of  the  board  of  directors. 
It  is  manifest  that  the  design  of  the  parties  was  that 
the  deed  should  serve  as  securit}'  for  the  repa3^ment 
of  the  money.  On  this,  in  part,  the  money  was  ad- 
vanced. And  even  though  the  deed  be  wanting  in  full, 
formal  execution  as  an  act  of  the  bank,  the  general 
authority  of  a  president,  and  the  general  relation  of 
this  president  to  the  bank,  and  all  the  circumstances 
and  conditions  under  which  the  deed  was  given,  we 
think,  are  sufficient  to  sustain  it  as  an  equitable  mort- 
gage, under  the  statutes  and  decisions  of  the  state 
of  Florida.  Margarum  v.  Orange  Co.,  37  Fla. 
165,  19  South.  637.  The  deed  to  the  bank  build- 
ing and  lot  was  recorded  the  same  da}'  the  bank 
closed.  An  effort  had  been  made  on  the  previous 
day  to  have  the  deed  recorded.  There  was  no 
agreement  between  the  parties  not  to  record  the 
deed,  or  to  withhold  it  from  record  for  any  time. 
As  between  the  parties,  the  deed,  if  otherwise 
good  as  a  mortgage,  was  good,  without  reference  to 
whether  it  was  recorded  or  not.  Rogers  v.  Munner- 
lyn,  36  Fla.  591,  18  South.  669.  We  think  it  would 
be  going  very  far  to  hold  that,  under  these  circum- 
stances and  conditions,  the  general  creditors  obtained 
by  force  of  the  United  States  statutes  a  lien  on  this 
property  before  the  filing  of  the  deed  for  record.  At 
the  most,  there  is  nothing  to  show  priority   in  favor  of 


B  CAS]  COLI.ECTIONS  271 

Kershaw  v.  Ladd 

either,  as  the  failure  of  the  bank  and  the  filing  of  the 
mortg-agfe  for  record  were  cotemporaneous.  We  con- 
clude that  the  decree  of  the  circuit  court  appealed  from 
should-be,  and  it  therefore  is,  affirmed. 

NOTK  . 

Power   of  Insolvent  National  Bank  to  Secure  Subsequent  Debt. — 

The  National  Bank  act  does  not  prohibit  a  national  bank  after  an 
act  of  insolvency,  or  when  it  is  in  contemplation  of  insolvency,  to 
transfer  property,  to  secure  a  loan  made  after  the  bank  is  in  such 
condition.  Casey  v.  La  Societie  de  Credit  Mobilier,  2  Wood  (U.  S.) 
77  ;  s.  c.  37  Am.  Rep.  508.  And  if  the  transaction  is  in  g-ood  faith, 
the  creditor  can  retain  the  property  so  transferred  until  the  debt  is 
paid,  even  though  the  creditor,  at  the  time  of  the  transfer  %Yas 
chargeable  with  notice  of  the  bank's  condition.  Armstrong  v. 
Chemical  Nat.  Bank,  41  Fed.  Rep.  234,  238-39. 


Kershaw  • 

V. 

Ladd  ef  al. 


{Supreme  Court  of  Oregon,  March  20,  i8gg.) 

Banks — Collections — Liability  for  Negligence. — Although  a  bank 
makes  no  direct  charge  for  its  services  in  collecting, the  benefits  which 
it  ordinarily  and  usually  derives  from  the  use  of  funds  while  in  its 
custody,  and  the  advantages  which  may  arise  from  business  associa- 
tions, constitute  a  sufficient  consideration  to  make  the  bank  liable 
for  negligence  in  collecting. 

Same — Same— Customs.* — It  is  not  negligence  for  a  bank  receiv- 
ing for  collection  an  ordinary  unendorsed  check  against  an  account 
with  a  bank  situated  and  doing  business  at  a  place  distant  from 
where  the  collecting  bank  is  located,  and  where  the  collecting  bank 
has  no  agent  or  correspondent  to  forward  the  check  by  mail 
directly  to  the  drawee  bank  for  collection  and  returns  where  such 
method  is  sanctioned  by  a  general  and  well-established  custom 
among  banks. 

Same — Same — Same — Reasonableness  —  Presumptions. — A  part}- 
attacking  such  custom  has  the  burden  of  proving  it  unreasonable. 

Immaterial  Question. — Where  plaintiff  was  not  injured  by  the  re- 
tention of  a  draft  by  the  collecting  bank,  it  is  immaterial  whether 
the  action  of  the  bank  in  retaining  it  was  or  was  not  ratified  by 
plaintiff. 

*See  note  at  end  of  case. 


272  COLLECTIONS  [vOL  I 

Kershaw  v.  Ladd 

Appeal  by  plaintiffs  from  Multnomah  county  circuit 
court.     Affinued. 

This  is  an  action  to  recover  damag-es  for  alleo-ed 
negflig-ence  on  the  part  of  the  defendants  in  the  at- 
tempted collection  of  a  check  drawn  by  plaintiff  in 
Case  stated  their  favor  upon  the  United  States  Banking- 

Company.  The  defendants  are  bankers, 
located  at  Portland,  and  the  United  States  Banking- 
Company  at  Sheridan,  50  miles  distant.  The  plaintiff 
resided  at  Grand  Ronde,  some  15  miles  from  Sheridan, 
and,  on  January  16,  1894,  forwarded  from  there  the 
check  in  question  to  the  defendants  at  Portland,  with 
instructions  to  collect,  and  remit  a  certificate  of  deposit 
for  one  year,  bearing  interest.  The  check  was  received 
by  defendants  January  18th,  and  forwarded  to  the 
United  States  Banking  Company  the  same  day,  for 
collection  and  return.  The  banking  company  received 
it  the  next  day,  and  on  the  23d  drew  a  draft  for  the 
amount  thereof  upon  the  Merchants'  National  Bank, 
its  correspondent  at  Portland,  and  on  the  24th  sent  the 
same  through  the  mail  to  defendants,  who  received  it  the 
same  da_y,  and  presented  it  for  payment,  which  was 
refused.  They  immediately  notified  plaintiff  by  letter 
at  Grand  Ronde,  and  asked  for  instructions.  Plaintiff 
replied  on  the  27th,  saying:  "I  am  at  a  loss  as  to 
the  best  course  to  pursue  in  the  matter.  I  understand 
that  there  has  been  no  attachment  issued  on  the  bank 
at  Sheridan.  The  prevailing  opinion  is  that  they  will 
be  able  to  make  satisfactory  arrangements  as  soon  as  J. 
M.  Baldridge,  the  vice  president  of  the  U.  S.  Banking 
Co.,  returns  from  the  E^ast,  which  will  take  place  in 
a  few  days.  However,  if  you  think  best,  hold  the 
check;  if  not,  return  to  me.  Any  advice  you  can  give 
me  will  be  greatly  appreciated."  Defendants  received 
the  reply  on  the  30th,  and  on  the  31st  sent  a  letter  to 
plaintiff,  of  which  the  following  is  a  copy:  "We  have 
written  to  the  Bank  of  Sheridan  that  they  return  the 
check  for  SI, 500  which  we  sent  to  them  for  collection 
for  you,  as  requested.  They  replied  to  us  that  the 
sheriff  was  in  charge  at  present,  and  they  could  not  do 


B  CAS]  COLLECTIONS  273 

Kershaw  z'.  Ladd 

it.     We  herewith  hand  you  the  check  for  SI, 500  which 
they  remitted  for-your  check,  and  we  think  that  you  had 
better  take  it,  as  it  is  the  evidence  of  your  claim  ag-ainst 
the  banlv,  and  g-o  to  Sheridan,  and  see  what  5^ou  can  do 
in  the  matter  of  g-etting-  your  money."     Plaintiff  had 
$1,717.71  on  deposit   with  the  banking-  company  at  the 
date  of  his  check.     The  company  closed  its  doors  Jan- 
uary 24th.   It  had  cash  on  hand,  January  20th,  S2,726.25; 
January  21st,   52,891.50;  January  23d,  $2,973.71;    Jan- 
uary 24th,  $2,265.42.  On  February  3d  plaintiff  assig-ned 
his  said  deposit  to    Paul   Fundman    for  the  purpose  of 
collection,  who  thereupon  sued  the  company,  attached 
its  property,   and   subsequently   procured    judg-ment; 
but,    owing-   to   prior   attachments,  the   first   of   which 
was  issued  January  26th,  was  unable  to  secure  anything" 
thereon.     At  the   time   the   defendant    forwarded   the 
check  to  the  banking-  compan3%  it  was  in  g-ood  standing-, 
and  had  theretofore  paid   all  demands  promptly.     The 
defendants  had    no  correspondent   at  Sheridan,   but  a 
reliable  express  ag-ency  and  another  bank  were  located 
there,  the  latter  of  which  had  been  doing-  business  but 
a  short   time,   and  defendants  did  not  appear  to    have 
had  any   knowledge  of   its  existence.     The   defense  is 
set  up  that  the  check  in  question  was  a  plain,  ordinary 
one,  without  indorsements;  that  defendants  undertook 
and  agreed  to  collect  the  same   in  accordance  with   the 
custom  and  ordinary  method  by  which  such  collections 
were   made   by  banks;  that  there  was  no  ag-reement  by 
which  the}'  were  to  receive  compensation  for  their  ser- 
vices;   that,  in  attempting-   to  collect   said  check,  they 
pursued  the    g-eneral   and   universal  custom  obtaining- 
among-  banks    in  Portland  and   elsewhere,  and  that  by 
reason  thereof  they   were   not    charg-eable   with  neg-li- 
gence.     As  a  second  defense,  it  is  alleg-ed  that  plaintiff' 
ratified   defendants'    said   acts  by  accepting-    the   draft 
remitted  to  them  by  the  banking-  company,  and  retaining- 
the  same  for   more   than  a  year    without   making-  any 
claim    for   neg-lig-ence    ag-ainst   the    defendants.     Trial 
was   had   before   the   court,  and,    judgment   being-  for 
defendants,  plaintiff  appeals. 

B  CAS— 18 


-274  COLLECTIONS  [vOL  I 

Kershaw  c'.  Ladd 

O.  p.  6V?5//6>:w' and  O.  H.  Irvine,  for  appellant. 
■■S.  B.  Lhithicuni,  for  respondents. 

WoLVERTON,C.  J.  (after  statint^- the  facts).  The  ques- 
tion presented  is  whether  the  defendants  were  guilty 
of  negliofence  in  forwarding-  plaintiff's  check  direct  to 
the  bank  upon  which  it  was  drawn,  and  in  retaining- 
the  evidence  of  indebtedness  until  it  had  closed  its 
doors,  and  its  propert}^  had  been  seized  on  attachment. 
The  instrument  was  a  plain,  ordinary  check,  unindorsed, 
«ave  as  it  may  have  been  indorsed  by  the  defendants  prior 
lo  forwarding  the  same  for  collection  and  return.  The 
•engagement  of  the  defendants  was  to  collect  and  issue 
^  certificate  of  deposit  for  the  proceeds,  drawing 
interest.  There  is  some  controversy'  as  to  whether  the 
defendants  were  to  receive  any  compensation 
Banks-roiiect-      for   their    services  ;    but  the    very  terms    in 

ions -liability  for  r  i   •     i         ,i  j        i.       i        j.i 

Sfgii?eucf.  pursuance    oi    which     they     undertook    the 

collection  would  indicate  that  the}-  were  to 
receive  a  sufEcieut  consideration  to  make  them  liable 
for  neglect  of  the  duty  enjoined  upon  them.  They 
Avere  to  have  the  use  of  the  money  when  collected, 
upon  which  they  intended  to  pay  the  plaintiff  interest  ; 
and  this,  we  are  impelled  to  believe,  would  be  sufficient 
Avithin  itself.  Generalh'  speaking,  it  can  make  no 
■difference  that  a  bank  makes  no  direct  charge  for  its 
•services  in  collecting,  for  the  benefits  which  it  ordinarily 
and  usually  derives  from  the  use  of  the  funds  while  in 
its  custody,  and  the  advantages  which  may  arise  from 
business  associations,  are  held  and  deemed  to  be  ade- 
quate consideration  for  the  undertaking,  and  quite 
sufficient  upon  which  to  predicate  the  liabilitv  incident 
thereto.  Bank  r.  Goodman.  109  Pa.  St.  422,  2  Atl. 
•687  ;  Bailie  f.  Bank,  95  Ga.  277,  21  S.  E.  717  ;  Titus 
V.  Bank,  35  N.  J.  Law,  588.  In  the  ordinary  trans- 
action, where  a  check  is  given  and  received  in  payment 
of  a  demand,  the  discharjife  of  the  demand  is  conditional 
upon  the  honor  and  payment  of  the  check  when  presented 
in  due  course  of  established  business  usages,  sanctioned 
by  law  ;  but  failure  to  present  it  to  the  drawee  for 
payment    within  the  proper  time,  depending-  upon  the 


% 


B  CAS]  COLLECTIONS  275 

Kershaw  z'.  Ladd 

proximity  of  the  payee  and  the  drawee  to  each  other, 
and  to  notify  the  drawer  of  nonpayment,  will  discharge 
the  drawer's  oblig^ation  to  the  extent  of  his  loss  by 
reason-' of  such  failure  of  demand  and  notice.  Greg-o-f. 
Georo-e,  16  Kan.  546.  It  is  said  :  "A  check  differs  from 
a  bill  of  exchange  in  several  particulars.  It  has  no 
days  of  grace,  and  requires  no  acceptance  distinct  from 
prompt  paj^ment.  The  drawer  of  the  check  is  not  a 
surety,  but  the  principal  debtor,  as  much  as  the  maker 
of  a  promissor}^  note.  It  is  an  absolute  appropriation 
of  so  much  money  in  the  hands  of  the  banker  to  the 
holder  of  the  check,  and  there  it  ought  to  remain  until 
called  for,  and  the  drawer  has  no  reason  to  complain 
of  delay,  unless  upon  the  intermediate  failure  of  his 
banker.  By  unreasonable  delay  in  such  a  case  the 
holder  takes  the  risk  of  the  failure  of  the  person  or  bank 
on  which  the  check  is  drawn."  3  Kent,  Conn.  *104, 
note  2.  The  rule  governing  the  time  in  which  the 
holder  is  required  to  present  a  check  in  order  to  relieve 
himself  from  the  risk  of  loss  by  failure  of  the  drawee 
mav  be  stated  as  follows  :  If  the  payee  receives  the 
check  in  the  same  place  where  the  bank  upon  which  it 
is  drawn  is  located,  he  may  present  it  for  payment  at 
any  time  before  the  close  of  banking  hours  of  the  next 
secular  day,  and  thereby  maintain  recourse  against  the 
draw^er.  If,  in  the  meantime,  the  bank  fails,  the  loss 
will  be  the  drawer's.  The  term  "secular  da}'"  is 
used  to  exclude  Sunday,  so  that,  if  the  check  be  received 
on  Satui:da3%  the  payee  would  have  all  day  on  the 
Monday  following  in  which  to  make  the  presentment. 
But,  if  the  payee  receives  the  check  in  a  place  distant 
from  where  the  drawee  bank  is  situated,  it  will  be 
sufficient  for  him  to  forsvard  it  by  post,  on  the  next 
secular  day  after  it  is  received,  to  some  person  at  the 
latter  place,  who  is  required  to  present  it  for  payment 
on  or  before  the  next  day  after  it  reaches  him  in  due 
course  of  mail.  These  periods,  depending  upon  the 
location  of  the  respective  participants,  which  are 
declared  requisite  for  the  convenient  presentment  of  a 
check,   are  deemed   to  have   been  contemplated    b}'  the 


276  coLivECTioNs  [vol  I 

Kershaw  v.  Ladd 

drawer,  and  he  remains  absolutely  liable,  although  the 
bank  migfht  fail  pending-  their  duration.  2  Daniel, 
Neg.  Inst.  B  1590,  1592^  Farwell  v.  Curtis,  7  Biss. 
160,  Fed.  Cas.  No.  4,690.  The  allowance  of  a  day, 
however,  in  which  to  present  the  check,  does  not 
extend  to  an  ag-ent  who  receives  one  for  the  debt  of  his 
principal.  Such  a  check  must  be  presented  with  due 
and  proper  diligfence  ;  otherwise,  it  is  at  the  peril  of 
the  party  retaining-  it  and  postponing-  presentment  as  be- 
tween him  and  the  person  in  whose  interest  he  is  acting-. 
Smith  f.  Miller,  43  N.  Y.  171  ;  Anderson  v.  Gill  (Md.) 
29  Atl.  527.  The  rules  in  respect  to  g-iving*  notice  of 
the  dishonor  of  a  check  are  the  same  as  where  a  bill  of 
exchange  or  promissory  note  is  involved.  If  anything-, 
however,  by  reason  of  the  intention  of  the  parties  to  the 
instrument  that  the  payment  should  be  immediate,  and 
of  the  fact  that  it  is  drawn  against  a  deposit,  they  are 
to  be  more  strictly  construed  and  enforced  in  the  case 
of  a  check  than  of  other  commercial  paper.  Tied. 
Com.  Paper,  §  442. 

The  parties  ag-ree  that  at  the  time  the  transactions 
which  form  the  basis  of  the  present  controversy  .took 
place  there  existed,  and  still  exists,  among-  the  banks 
in  Portland  and  elsewhere,  a  general  and  well-estab- 
lished custom  to  the  effect  that  when  a  bank  or  banker 
receives  for  collection  an  ordinary  check  against  an  ac- 
count with  a  bank  or  banker  situated  and  doing-  busi- 
ness at  a  place  distant  from  where  the  collecting-  bank 
is  located,  and  such  collecting  bank  has  no  ag-ent  or 
correspondent  at  the  place  of  the  drawee  bank,  for  the 
collecting-  bank  to  forward  the  check  by  mail  directly 
to  the  drawee  bank  for  collection  and  returns  ;  and 
that  it  is  also  a  general  and  well-established  custom 
among-  such  banks  that  when  a  bank  or  banker  re- 
ceives, from  a  bank  or  person  at  a  distance,  for  collec- 
tion and  return,  an  ordinary  check,  drawn  upon  a  bank 
situated  at  the  same  place  as  the  receiving  bank,  for  the 
receiving  bank  not  to  remit  cash  to  the  bank  or  person 
from  whom  such  check  was  received,  but  to  remit  the 
check  or  draft,  either  of  the  receiving  or  drawee  bank, 


B  CAS]  COLLECTIONS  277 

Kershaw  v.  Ladd 

drawn  upon  the  correspondent  of  such  receiving-  or 
drawee  bank  at  the  place  from  which  the  original 
check  was  forwarded,  payable  to  the  order  of  the  bank 
or  person  from  whom  the  check  was  received.  It  is 
contended  by  the  respondents  that  these  customs  are 
to  be  considered  the  law  of  the  case,  and  are  control- 
ling- for  the  government  of  the  parties;  and  that,  meas- 
ured thereby,  the  defendants  are  not  charg-eable  with 
negligence  for  pursuing-  the  course  adopted  in  endeav- 
oring to  make  the  collection.  Upon  the  other  hand,  it 
is  maintained  that  the  custom  of  sending  the  check  di- 
rect to  the  drawee  bank  for  collection  and  return  is 
unreasonable,  and  therefore  that  it  does  not  and  cannot 
obtain  the  sanction  of  law,  and  that  such  an  act  is  neg"- 
ligence  ^^T  sg,  which  will,  in  case  loss  should  occur 
by  reason  thereof,  render  the  collecting-  bank  liable 
therefor.  The  reason  assig^ned  is  that  the  collecting 
bank  thereb}"  makes  the  drawee  bank  its  agent  for 
presentment,  demand,  protest,  and  g-iving  notice  of 
nonpayment  to  the  indorsers,  if  any,  and  the  drawer  ; 
and  that  the  duties  thus  devolving-  upon  such  an  ag-ent 
are  inconsistent,  and  incapable  of  being  performed  by 
the  drawee  of  the  check,  as  it  is  said  he  cannot  present 
a  demand  to  himself,  or  demand  payment  of  himself, 
much  less  protest  his  own  paper,  and  g-ive  notice  to 
the  proper  parties  that  he  has  refused  payment. 
There  exist  two  different  theories  among  the  courts  of 
this  country  touching-  the  responsibility  of  -banks  un- 
dertaking- collections  on  commercial  paper  at  a  dis- 
tance. One  line  of  authorities  holds  to  the  rule  that 
the  forwarding  bank  is  liable  only  for  the  selection  of 
a  suitable  local  agent  with  whom  to  intrust  the  collec- 
tion, and  that  the  agent  so  selected  becomes  the  agent 
of  the  owner  of  the  paper;  while,  on  the  ©ther  hand, 
it  is  held  that  the  forwarding  bank  makes  the  local 
agent  its  own  subag-ent,  and  is  liable  for  any  neg-lect 
on  the  part  of  such  subag-ent.  But  it  is  argued  that 
in  either  event  the  defendants  are  liable,  as,  under  the 
latter  rule,  the}^  became  absolutely  responsible  for  the 
conduct  of  the  Sheridan  Bank,  while,  under  the  former, 


278  COLLECTIONS  [vOL  I 

Kershaw  v.  Ladd 

it  was  neg-lig-ence  ;per  se  to  have  selected  the  Sheri- 
dan Bank  as  agent  for  the  purpose  of  consummating- 
the  collection.  It  does  not  appear  to  us,  however,  to 
be  necessary  to  the  determination  of  the  present  con- 
troversy that  either  rule  should  be  adopted  or  applied. 
The  check  in  question  was  drawn  payable  to  the  de- 
fendants, and  was  unindorsed  by  any  one,  so  that  there 
were  no  indorsers  or  third  parties  in  the  transaction 
to  be  subserved,  and  protest  and  notice  thereof  were 
unnecessary,  and  not  required.  The  defendants,  there- 
fore, assumed  the  simple  duty  of  presenting  the  check 
for  payment,  under  the  rules  of  law  obtaining,  and,  if 
not  paid,  or  payment  was  refused,  of  notifying  the 
drawer,  so  that  he  might  not  suffer  loss  by  reason  of  the 
failure  of  the  drawee  bank. 

In  Prideaux  v.  Criddle,  L.  R.  4  Q.  B.  455,  it  is  said: 
"A  presentment  through  the  post  office  is  a  reason- 
able mode  of  presentment.  It  is  a  very  common  mode» 
and,  having  regard  to  the  commercial  business  of  this 
country,  it  may  Idc  said  to  be  a  proper  mode,  of  present- 
ment. If  the  drawee  dishonors  the  check, and  the  holder 
sends  notice  of  dishonor  to  the  person  from  whom  he  re- 
ceived the  check  on  the  day  following  that  on  which  the 
check  was  dishonored,  each  previous  transferror  has 
one  day  in  which  to  give  notice  of  dishonor."  In 
Bailey  v.  Bodenham,  16  C.  B.  (N.  S.)  288,  Erle,  C.  J., 
was  inclined  to  think  that  a  check  sent  through  the 
post  to  the  drawee  was  a  good  presentment, and  he  says: 
"But,  unless  the  money  was  remitted  by  return  of 
post,  the  absence  of  an  answer  should  have  been  con- 
sidered as  a  dishonor,  and  notice  of  such  dishonor 
should  have  been  given  promptly."  In  Hey  wood  t'. 
Pickering,  L.  R.  9  Q.  B.  428,  where  the  check  was 
sent  to  the  drawees  direct,  with  demand  for  payment, 
Blackburn,!.,  thought  it  to  be  a  good  presentment  for 
payment,  and  that  the  refusal  to  remit  constituted  an 
actual  dishonor  of  the  check.  QuAiN,  J.,  in  the  same 
case,  says  :  "There  is  ample  evidence  that,  according 
to  the  custom  of  bankers,  when  a  foreign  check  is 
paid  to  a  banker  by  a  customer,  that  is  the  usual  mode 


B  CAS]  COLLECTIONS  279 

Kershaw  v.  Ladd 

of  transmittingt-  checks.  Is  that  a  g-ood  presentment? 
In  Bailey  v.  Bodenham,  Erle,  C.  J.,  and  Byles,  J., 
thouo;ht  that  sending-  a  check  by  post  to  a  banker 
might'-  be  a  good  presentment  of  a  check  ;  and  in 
Prideaux  v.  Criddle,  Lush,  J.,  was  of  the  opinion  that 
a  presentment  through  the  post  office  was  a  reasonable- 
mode  of  presentment.  Therefore  we  have  it  that  in 
the  present  case  there  was  a  due  presentment  of  the 
check  according"  to  these  authorities."  As  supporting- 
this  position,  see,  also,  2  Daniel,  Neg.  Inst.  §  1559. 
These  are  English  cases,  it  is  true,  but  a  like  manner 
of  presentment  seems  to  have  received  recognition  in. 
this  country.  In  the  case  of  Indig*  v.  Bank,  80  N.  Y. 
100,  a  note,  unindorsed, pa3^able  at  the  bank  of  Lowville, 
was  placed  in  the  hands  of  defendant  for  collection,, 
who,  instead  of  sending-  it  to  an  ag-ent  or  correspondent 
at  Low^ville  for  presentment,  sent  it  by  mail  directly  tO' 
the  Ivowville  Bank.  It  was  remarked  that  such  a 
method  appeared  to  be  the  ordinary  one  for  the  trans- 
action of  such  business,  and  the  defendant  was  bound 
only  to  adopt  the  ordinar}^  mode,  and  that  the  practice 
Vv-as  sanctioned  by  the  English  cases.  It  was  there 
contended  that  by  sending-  the  note  direct  to  the  Low- 
ville  Bank  the  collecting  bank  thereby  constituted  the 
Ivowville  Bank  its  ag'ent ;  but  it  was  held  that,  in  so 
far  as  it  related  to  the  presentment  of  the  note  at  the 
bank,  and  the  duties  of  the  bank  in  respect  to  it,  it  was 
equivalent  to  a  check  drawn  by  the  maker  upon  the 
bank  where  the  note  was  payable.  As  the  case  bears 
some  analogy  to  the  one  at  bar,  we  may  be  pardoned  if 
we  quote  somewhat  at  length  from  the  opinion  of 
Rapallo,  J.  He  says  :  "The  bank  owed  a  duty  to 
its  customer  to  pay  it  on  presentation,  if  in  funds. 
The  defendant  used  the  United  States  mail  to  make 
the  presentment,  and  by  this  means  caused  it  to  be 
presented  to  the  bank  for  payment  on  the  day  when 
due.  It  did  not  deposit  it  there  for  collection.  If 
there  had  been  indorsers,  it  mig-ht  be  arg-ued  that  the 
defendant  constituted  the  bank  of  Lowville  its  agent  tO' 
notify  the  indorsers  of  nonpayment  ;  but  even  this  is 


280  COLLECTIONS  [vOL  I 

Kershaw  v.  Ladd 

vei"}''  questionable,  for  it  was  held  in  a  similar  case  that, 
if  the  proceeds  were  not  remitted,  the  paper  should  be 
deemed  dishonored,  and  notice  of  nonpayment  should 
be  «-iven  by  the  bank  which  had  sent  it.  Bailev  v. 
Bodenham,  16  C.  B.  (N.  S.)  288.  No  such  question 
arises,  however,  in  the  present  case,  for  there  were  no 
indorsers.  The  defendant,  by  sending"  the  note  to  the 
Bank  of  Lowville,  requested  it  to  pay  it,  not  to  receive 
the  proceeds.  The  object  of  sending-  was  to  extract 
money  from  the  bank,  as  ag^ent  of  the  maker  of  the 
note,  not  to  put  money  in  the  bank  as  ag^ent  of  the 
defendant,  or  to  the  credit  of  the  defendant.  There  is 
nothing-  in  the  nature  of  the  transaction  which  should 
render  the  defendant  g-uarantor  of  the  solvency  of  the 
Bank  of  Lowville.  ^  *•'  ^  The  bank  on  which  the  note 
is  drawn  has  nothing-  to  do  but  to  pay  the-  note  if  in 
funds,  and,  if  not,  to  refuse  to  pay.  If  it  pays,  it  does 
so  on  behalf  of  the  maker,  and  no  relation  is  created 
between  it  and  one  who  presents  it  by  mail,  different 
from  that  which  would  exist  if  presented  throug-h  any 
other  ag-ency,  unless  accompanied  by  a  request  to  do 
some  further  act  in  behalf  of  the  sender  beyond  com- 
plying- with  its  duty  to  its  own  customer."  And  in 
Brig-g-s  I'.  Bank,  89  N.  Y.  182,  the  same  learned  judg-e, 
in  explanation  of  the  opinion  rendered  in  the  Indig- 
Case,  says  :  "The  point  of  the  decision  is  that  the 
mere  act  of  presenting-  the  paper  for  payment  by  mail, 
instead  of  employing-  a  messeng-er  to  present  it,  does 
not  constitute  the  drawee  ag-ent  of  the  sender  to  receive 
or  hold  the  proceeds."  To  the  same  effect,  see.  also. 
People  f.  Merchants',  &  M.  Bank,  78  N.  Y.  269.  It 
will  be  noted  that  the  presentment  in  the  case  of  Hey- 
wood  V.  Pickering-  was  in  accordance  with  the  custom 
then  prevailing-,  and  the  one  in  the  Indig-  Case  was  in 
pursuance  of  the  ordinar}^  method  ;  and  the  custom  in 
the  one  case  and  the  method  in  the  other  were  very 
similar  to  the  one  which  it  is  ag-reed  by  the  parties 
exists  among-  the  banks  of  Portland  and  elsewhere, 
and  they  seem  to  have  been  considered  as  controlling-, 
and  as    leg-alizing-  the    presentm.ent    in    the    respective 


B  CAS]  COLLECTIONS  281 

Kershaw  v.  Ladd 

manners  there  adopted.  Mr.  Tiedeman,  in  his  work  ou 
Commercial  Paper  (§  444),  says  :  "A  custom  has  g-rown 
up  of  late  to  send  the  check  direct  to  the  bank  upon 
which  it  is  drawn  ;  in  other  words,  to  make  present- 
ment by  mail.  The  sufficiency  of  this  method  of  pre- 
sentment has  been  doubted,  but  it  seems  that  this 
method  is  more  or  less  commoul}'  adopted,  and  the 
weight  of  authority  is  in  favor  of  its  sufficiency." 

In  the  light  of  these  authorities,  we  are  con- 
strained to  hold  that  the  transmission  of  the  check 
in  question  by  the  defendants  direct  to  the  Sheridan 
Bank,  through  the  post,  for  collection  and  return, 
operated  as  a  good  presentment  for  payment. 
A  custom  which  obtains  so  generally  and  tu"omi!!'""'^~ 
universally  among  men  of  the  highest  order 
of  business  sagacity  appeals  strongly  to  the  understand- 
ing for  recognition,  and,  unless  demonstrated  to  be 
clearly  and  palpably  unreasonable  and  unjust,  it  ought 
to  be  adopted  as  the  law  of  the  case.  It  is  true,  the 
admittedly  prevailing  custom  or  usage  exists  and  ap- 
plies as  well  to  certified  checks,  certificates  of  deposit, 
and  notes  payable  at  the  banks  ;  but  we  are  here  deal- 
ing with  a  simple,  unindorsed  check,  and  are  only  called 
upon  at  this  time  to  sanction  the  custom  or  usage  in  so 
far  as  it  may  be  potent  as  affecting  the  present  exigen- 
cies. However,  there  is  authority  for  the  sanction  of 
it  to  the  full  extent  prevailing,  as  denoted  by  the  agree- 
meut  of  the  parties  here.  Trust  Co.  t'.  Newland  (Ky.) 
31  S.  W.  38  ;  Jefferson  Co.  Sav,  Bank  v.  Commercial 
Nat.  Bank  (Tenn.  Sup.)  39  S.  W.  338.  Usages  are 
presumed  to  be  reasonable,  and  in  considering  them  the 
courts  do  not  so  much  determine  whether  they  are 
supported  by  satisfactory  grounds  as  whether  they  are 
necessarily  unreasonable.  The  party  attacking  the 
usage  or  custom  has,  therefore,  the  burden  of  the  con- 
troversy, as  the  question  to  be  decided  in  a  particuLar 
case  is  not  whether  the  usage  is  reasonable, 
but   whether  it  is  unreasonable.    27  Am.  &     saHI'lReli'sol^- 

Encr     KnC     Law     766  ahhiifss-Pre- 

Cases  are  cited  and  relied  upon  b}^  the  ap- 
pellant, wherein  it  is  held  to  constitute  an  act  of  negli- 


282  COLLECTIONS  [vOL  I 

Kershaw  v.  Ladd 

g"ence,  and  even  negligfence  fcr  se,  for  the  collecting- 
bank  to  send  paper  direct  to  the  drawee  bank,  located 
at  a  distant  place,  for  collection  and  return.  The  most 
conspicuous  of  these  are  :  Bank  v.  Goodman,  109  Pa. 
St.  422,  2  Atl.  687  ;  Bank  v.  Burns,  12  Colo.  539,  21 
Pac.  714;  Anderson  z'.  Rodo-ers  (Kan.  Sup.)  36  Pac. 
1067  ;  Drovers'  Nat.  Bank  v.  Ang-lo-American  Packing- 
&  Provision  Co.,  117  111.  100,  7  N.  Ei.  601  ;  Far  well  v, 
Curtis,  siip}-a  ;  Whitney  f.  Esson,  99  Mass.  308  ;  First 
Nat.  Bank  t-.  Citv  Nat.  Bank  (Tex.  Civ.  App.)  34  S. 
W.  458  ;  First  Nat.  Bank  v.  Fourth  Nat.  Bank,  6  C. 
C.  A.  183.  56  Fed.  967  ;  Bailie  v.  Bank,  95  Ga.  277,  21 
S.  K.  717.  But  in  no  one  of  these  cases  was  there  a 
ofeneral  and  universal  custom  relied  upon  to  support 
the  act  of  the  collecting-  bank,  as  there  is  here.  The 
case  of  Whitney  v.  Ksson,  supra,  comes  the  nearest. 
The  paper  involved  was  a  draft,  and  it  is  there  said  : 
"It  is  not  a  reasonable  usag-e  that  one  who  collects  a. 
draft  for  an  absent  party  should  be  allowed  to  g-ive  it 
up  to  the  drawee,  and  sacrifice  the  claim  w^hich  the 
owner  may  have  on  prior  parties,  upon  the  mere  receipt 
of  a  check,  which  may  turn  out  to  be  worthless." 
But  this  must  be  read  in  connection  wuth  the  ag-ree- 
ment  of  the  parties  in  that  case,  which  was  that  it  w^as 
a  common  practice  for  holders  of  drafts  or  checks  to 
accept  the  check  of  the  drawee  in  exchang-efor  the  draft, 
but  it  was  not  claimed  to  be  a  g^enerally  established 
usag-e.  In  Farwell  v.  Curtis,  supra,  it  was  said  the 
practice  of  sending-  checks  b}^  mail  to  the  drawee  was 
not  usual,  thereby  indicating-  that  no  such  custom  or 
usag-e  was  there  established  or  relied  upon.  In  Drov- 
ers' Nat.  Bank  v.  Anglo-American  Packing  «&  Provi- 
sion Co.,  supra,  a  custom  wassoug-ht  to  be  established, 
but  it  was  not  broad  enough,  as  remarked  by  the  court, 
to  include  the  certified  check  which  formed  the  basis 
of  the  action.  And  in  First  Nat.  Bank  v.  City  Nat. 
Bank,  supra,  the  statement  of  the  case  shows  it  did 
not  appear  that  the  owners  of  the  paper,  by  consent  or 
usage,  authorized  the  forwarding-  of  their  draft  direct 
to  the  drawee.     These  cases  involve,  indiscriminately, 


B  CAS]  COLLECTIONS         '  283 

Kershaw  v.  Ladd 

ordinary  checks,  certificates  of  deposit,  certified  checks, 
and  drafts.  Upon  principle  it  would  seem  that  the 
usag"e  is  not  an  unreasonable  one,  in  so  far,  at  least,  as 
it  may  apply  to  the  collection  of  a  plain,  unindorsed 
check.  If  payment  of  such  check  is  refused,  the  payee 
may  sue  the  drawer  for  breach  of  contract  ;  but  the 
drawer  onl}^  can  sue  the  drawee,  and  this  upon  the  im- 
plied contract  to  pay  upon  demand.  The  bank  of  de- 
posit has  but  a  simple  duty  to  perform  when  the  paper 
is  presented  for  payment  only,  and  that  is  to  honor  it 
by  compliance  with  the  demand  ;  so  that  the  maner  of 
presentment  and  demand  for  pa3^ment,  whether  over 
the  counter  or  throug-h  the  post,  cannot  affect  the  dis- 
chargfe  of  such  duty.  In  no  sense  can  it  become  the 
ag"ent  of  the  party  presenting*  it,  or  of  the  drawer,  by 
acting-  in  the  discharofe  of  its  duty  in  honoring-  it,  and 
making"  payment.  Where  a  party  employes  a  bank  to 
make  a  collection  at  a  place  distant  from  where  the 
bank  is  located,  and  nothing-  is  said  touching-  the  spe- 
cific manner  of  making-  the  same, it  must  be  presumed  it 
was  intended  by  the  customer  of  the  bank  that  the  col- 
lection would  be  made  in  the  usual  and  ordinary  manner, 
and  in  accordance  with  the  g-eneral  usage  and  custom 
prevailing-  among-  banks.  If  the  collection  is  made  in 
accordance  therewith,  the  bank  has  performed  its  un- 
dertaking-. Trust  Co.  V.  Newland,  si(pra\  Jefferson  Co. 
Sav,  Bank  v.  Commercial  Nat.  Bank,  si(f>ra. 

Now,  to  recur  to  the  facts:  The  plaintiff  had  on  de- 
posit with  the  Sheridan  Bank  81,717.71.  Of  this  fund 
he  proposed  sending-  SI, 500  to  the  defendants,  in  Port- 
land, for  the  purpose  of  making  a  time  deposit  with 
them,  drawing  interest.  He  informed  the  Sheridan 
Bank  of  his  intention  to  draw  upon  it  for  that  amount, 
and,  as  a  means  of  having-  the  money  transmitted  to 
Portland,  he  drew  his  check  in  favor  of  the  defendants. 
They,  in  pursuance  of  the  custom,  sent  it  by  mail  to 
the  Sheridan  Bank  for  collection  and  return.  This 
must  be  considered  a  demand  upon  that  bank  for  pay- 
ment, and  it  had  but  a  simple  duty  to  perform,  which 
was   to  pay;  and  this   it  should  have  done,    not  as   the 


284  COLLECTIONS  [vol  I 

Notes 

act  of  either  the  defendants  or  the  plaintiff,  but  for 
itself;  and  therefore  it  could  not  have  been  the  agent 
of  either  in  the  performance  of  such  duty.  The  fail- 
ure to  pay  upon  presentment  and  demand  was  a  refu- 
sal to  pay,  and  a  dishonor  of  the  check,  and  the  defend- 
ants, not  having-  received  payment  thereof  by  return 
mail  (having-  regard  for  the  business  hours  of  the 
banking  company  and  the  arrival  and  departure  of 
the  mails),  should  have  so  treated  it,  and  notified  the 
plaintiff  thereof  by  the  following-  mail,  or,  at  least,  by 
the  mail  of  the  following  day.  It  was  the  duty  of  the 
defendants,  they  not  being  in  a  condition  to  sue  the 
drawee,  to  notify  the  plaintiff  at  once  of  the  dishonor 
of  his  paper,  so  that  he  could  have  brought  an  action 
against  it,  if  he  so  desired,  for  the  recovery  of  his  de- 
posit. But  the  case  was  not  presented  upon  the  theory 
that  the  loss  to  plaintiff  was  caused  by  the  negligence 
of  defendants  failing  to  notify  him  of  the  dishonor  of 
his  paper.  By  this,  however,  we  do  not  intimate  that 
the  facts  as  disclosed  by  the  record  would  support 
such  theory. 

The  specific  charges  of  negligence  are  that  defend- 
ants sent  the  check  direct  to  the  drawee  baak  for  col- 
lection, and  retained  the  evidence  of  indebtedness  until 

after  the  bank  had  closed.  Upon  the  first 
jminatfriaKiuM-    g-j-Qund  wc  have  secu  that  the  act  of  sending 

the  check  direct  to  the  drawee  for  collection 
was  not  negligence,  under  the  usage  and  custom  pre- 
vailing, and  in  the  light  of  defendants'  undertaking; 
and,  upon  the  second  ground,  it  is  plain  that  plaintiff 
could  not  have  been  injured  by  the  retention  of  the 
check,  as  he  was  enabled  to  and  did  sue  without  it. 
In  this  view,  the  question  of  ratification  becomes  un- 
important. The  findings  of  fact  are  full  upon  all  the 
issues  made,  and  amply  support  the  conclusions  of 
law.     The  judgment  will  therefore  be  affirmed. 

NOTES. 

Collections — Selecting  Drawee  Bank  as  Correspondent. — The 
drawee  bank  is  not  a  proper  agent  to  collect  the  draft,  and  the  for- 
warding bank  will  be  liable  for  all  loss  resulting  from  the  selection 


B  CAS]  COLLECTIONS  285 

Notes 

of  the  drawee  bank  for  such  purpose.  Evansville  First  Nat.  Bank 
V.  Louisville  Fourth  Nat.  Bank,  56  Fed.  Rep.  967  ;  German  Nat. 
Bank  v.  Burns,  12  Colo.  539,  13  Am.  St.  Rep.  247  ;  Drovers'  Nat. 
Bank  v.  Ang-lo-American  Packing-,  etc.,  Co.,  18  111.  App.  191,  117  111. 
100,  57  Am.  Rep.  855;  Anderson  v.  Rodg-ers,  53  Kan.  542;  Whitney 
V.  Esson,  99  Mass.  308,  96  Am.  Dec.  762  ;  Wagner  v.  Crook,  167  Pa. 
St.  259,  46  Am.  St.  Rep.  672.  But  cojiipare  Farmers'  Bank,  etc.,  Co. 
V.  Newland  (Ky.  1895),  31  S.  W.  Rep.  38. 

Same — Same — Forwarding  Draft — Agency. — In  People  v.  Mer- 
chants', etc.,  Bank,  78  N.  Y.  269,  34  Am.  Rep.  532,  it  was  decided 
that  where  a  bank  receives  from  one  of  its  customers  for  collection 
a  check  or  draft  drawn  upon  another  bank  at  a  distant  place,  and, 
for  the  purpose  of  collecting  the  paper,  sends  it  by  mail  to  the  bank 
upon  which  it  is  drawn  with  the  request  to  remit  the  amount,  the 
collecting  bank,  by  so  sending  the  paper  to  the  drawee  directly  for 
payment,  does  not  constitute  the  drawee  its  agent  to  receive  the  pro- 
ceeds, and  consequently  does  not  become  guarantor  of  the  solvency 
of  the  drawee  ;  and  that,  in  such  a  case,  though  the  drawee  has 
funds  of  the  drawer  of  the  paper,  and  charges  it  to  his  account  as 
paid,  but  fails  to  pay  to  the  collecting-  bank,  the  latter  is  not  re- 
sponsible to  its  customer  for  the  amount,  unless  there  has  been  some 
negligence.  According  to  these  decisions,  the  act  of  forwarding  the 
paper  is  equivalent  merely  to  making  a  presentation  of  the  paper  bv 
mail.     See  also  Indig-  v.  National  City  Bank,  80  N.  Y.  100. 

But  if,  in  a  case  of  this  description,  it  can  be  established  that  the 
correspondent  bank  was  the  agent  of  the  forwarding  bank,  the  for- 
warding bank  becomes  liable  to  the  depositor.  St.  Nicholas  Bank 
V.  State  Nat.  Bank,  128  N.  Y.  26  ;  Briggs  v.  Central  Nat.  Bank,  89 
N.  Y.  182,  affirming  (A  How.  Pr.  (N.  Y.)  250,  42  Am.  Rep.  285.  In 
these  cases  the  court  distinguished  Indig:  J'-  National  City  Bank,  80 
N.  Y.  100,  and  in  the  first  case  cited  it  was  said  that  it  was  a  border 
case,  and  that  its  doctrine  should  not  be  extended. 

In  German  Nat.  Bank  v.  Burns,  12  Colo.  539,  13  Am.  St.  Rep.  247, 
the  cases  from  78  and  80  New  York,  supra,  were  disfi?iguis/icd  upon 
the  ground  that  in  those  cases  the  paper  forwarded  for  collection 
was  merely  that  of  a  customer  of  the  collecting  bank  who  had  made 
the  paper  payable  at  such  bank.  But  the  court  in  Indig-  v.  National 
City  Bank,  80  N.  Y.  106,  said  :  "A  note  payable  at  a  bank  where  the 
maker  keeps  his  account  is  equivalent  to  a  check  drawn  by  him  upon 
that  bank,  except  that  in  the  case  of  a  note  the  failure  to  jjresent 
for  payment  does  not  discharge  the  :naker.  But  as  far  as  the  ques- 
tion now  under  consideration  is  concerned,  the  effect  is  the  same."' 

Same — Same— Usages.— The  practice  of  sending  the  paper  to  the 
debtor  bank  is  justified  by  the  custom  of  London  banks.  Russell  v. 
Hankey,  6  T.  R.  12. 

Presentment  by  Mail. — By  the  custom  of  London  bankers, 
where  a  foreign  check  is  paid  to  a  banker  by  a  customer,  if 
the  banker  has  no  agent  at  the  place  where  the  check  is  pay- 
able he  sends  it  direct  to  the  banker  on  whom  it  is  drawn, 
which  is  considered  due  presentment.  Heywood  v.  Pickering-,  L. 
R.  9  Q.  B.  428.  In  Bailey  v.  Bodenham,  "l6  C.  B.  N.  S.  288,  111 
E.  C.  L.  288,  33  L.  J.  C.  P.  252,  10  L.  T.  N.  S.  422,  Eri.K,  C.  J.,  and 
Byles,  J.,  thought  that  sending  a  check  b)'  post  to  a  banker  mig-ht 
be  a  good  presentment  of  a  check  ;  and  in  Prideaux  v.  Criddle.  L. 
R.  4  Q.B.  461,  Lush,  J.,  was  of  opinion  that  a   presentment  throug-h 


286  COLLECTIONS  [vOL  1 

Minneapolis  Sash  &  Door  Co.  v.  Metropolitan  Bank 

the  post  office  was  a  reasonable  mode  of  presentment.  See  also 
Hare  v.  Henty,  10  C.  B.  N.  S.  65,  100  E.  C.  L.  65,  4  L.  T.  N.  S.  363, 
30  L.  J.  C.  P.  302.  Although  these  cases  seem  to  countenance 
presentment  by  mail,  yet  there  is  no  express  adjudication  that  it  is 
proper. 

In  Farwell  v.  Curtis,  7  Biss.  (U.  S.)  162,  Hopkins,  J.,  says:  "In 
Morse  on  Banking-,  page  334,  he  saj's  it  is  a  good  presentment,  and 
cites  for  his  authority  Bailev  v.  Bodenham,  16  C.  B.  N.  S.  288, 
111  E.  C.  L.  288,  33  L.'  J.  C.  P.  252,  10  L.  T.  N.  S.  422.  I  have 
examined  that  case,  and  it  gives  some  countenance  to  his  assertion, 
but  I  think  the  point  is  not  absolutely  decided.  In  these  days  when 
such  facilities  are  furnished  by  express  companies  for  presentation 
at  distant  places  there  is  no  reason  for  adopting  a  less  direct  or 
effective  mode  to  accomplish  the  object." 


Minneapolis  Sash  &  Door  Co. 
Metropolitan  Bank. 

{Supreme  Court  of  Minnesota,  May  2,  i8gg.) 

Collections — Subagents. — For  the  purposes  of  collecting  a  check 
or  draft  deposited  or  left  for  collection,  a  bank  must  employ  a  suit- 
able subagent,  if  an  agent  be  necessary.  It  must  not  transmit  checks 
or  drafts  directly  to  the  bank  or  party  by  whom  payment  is  to  be 
made.  No  party  upon  whom  rests  the  obligation  to  pay  upon  pre- 
sentation can  be  deemed  a  suitable  agent,  in  contemplation  of  law, 
to  enforce,  on  behalf  of  another,  a  claim  against  itself. 

Same— Same— Limiting  Liability.— This  rule  is  not  affected  by  no- 
tice to  a  depositor  that  the  bank  attempting  a  collection  limits  its 
liability  so  that  it  acts  as  agent  only  for  the  depositor,  and  in  for- 
vrarding  items  for  collection  is  only  bound  to  select  agents  who  are 
responsible  according  to  its  judgment  and  means  of  knowledge,  and 
assumes  no  risk  or  responsibility  on  account  of  the  omission,  negji- 
gence,  or  failure  of  such  agents. 

Same— Usage  and  Custom.*— Nor  will  an  established  usage  and 
custom  existing  among  banks  to  send  checks  or  drafts  payable  by 
other  banks,  at  distant  points,  to  the  drawee  directly,  and  by  mail, 
in  case  there  is  no  other  bank  of  good  standing  in  the  same  town, 
excuse  or  justify  such  a  course  of  procedure.  In  case  of  loss  through 
the  bad  conduct  of  the  drawee,  the  sender  of  the  check  or  draft  must 
bear  it. 

Start,  C.  J.,  dissenting. 

(Syllabus  by  the  Court.) 

Appeal  by  plaintiff  from  Hennepin  count}^  district 
court.     Reversed . 

*See  Kershaw  v.  Ladd  et  at.  (Ore.) ,  ante,  p.  271  and  notes. 


B  CAS]  COLLECTIONS  287 

Minneapolis  Sash  &  Door  Co.  z'.  Metropolitan  Bank 

Penney  &  McMillan,  for  appellant. 
John  T.  Baxter,  for  respondent, 

Collins,  J.  On  the  admitted  facts  in  this  case,  the  only 
questiofi  necessarily  to  be  determined, in  our  opinion, 
is  whether  defendant  bank,  doing-  business  „  ,,  , , 
at  Minneapolis,  was  neglig-ent  when  it  sent 
by  mail,  and  for  collection,  the  Norton  check,  directl}- 
to  the  bank  at  Mapleton,  117  miles  distant,  upon  which 
bank  the  check  was  drawn  ;  loss  having-  resulted  by 
reason  of  the  adoption  of  this  method  of  presenting  the 
paper  for  payment.  The  defendant  seeks  to  justify  its 
procedure  upon  the  ground  that  it  had  restricted  its 
liability  to  its  depositors,  when  collecting-  checks  and 
drafts,  by  means  of  the  notice  printed  upon  its  deposit- 
ors' bank  or  pass  books,  of  which  notice  plaintiff's 
secretar}^  had  actual  knowledg-e  ;  and  alsjo  because  of 
a  w^ell-settled  usage  and  custom  then  prevailing  in 
banks  ;  and,  further,  because  the  same  result  would 
have  ensued  had  another  correspondent  been  selected. 
1.  Althoug-h  the  defendant  had  limited  its  liability 
so  that  when  receiving  checks  or  drafts  for  collection, 
or  on  deposit,  it  acted  as  an  agent  only,  and  in  forward- 
ing these  items  to  other  points,  for  collection,  it  was 
only  bound  to  select  agents  who  were  responsible, 
according-  to  its  judgment  and  means  of  knowledge, 
and  assumed  no  risk  or  responsibility  on  account  of 
their  omission  or  neglect  or  failure,  defendant  w^as 
obliged  to  exercise  reasonable  care  and  diligence  in 
adopting  a  method  of  presenting  the  check  in  question 
to  its  drawee  for  payment,  in  selecting  its  agent.  Now, 
can  it  be  held  that  defendant  exercised  reasonable  care 
when  it  sent  the  check  b}'  mail  to  the  very  party  most 
interested  against  the  pa3^ee  and  principal,  and  thus  to 
place  such  principal  entirely  in  the  hands  of  its  adver- 
sary. Norton  had  ample  funds  on  deposit  when  he 
drew  the  check,  and  also  when  the  check  reached  the 
draw^ee,  presumably  on  July  31st,  at  the  opening  of 
business  hours.  It  was  important  that  it  should  speed- 
ily be  presented  for  payment,  in  order  to  fix  his  liability 
in  case  of  nonpayment.     This  was  of  the  utmost  im- 


288  COLLECTIONS  [vOL  I 

Aliuiieapolis  Sash  &  Door  Co.  v.  Metropolitan  Bank 

portaiice  to  both  payee  and  maker,  in  order  that  the 
interests  of  each  mio-ht  be  protected.  The  interest  of 
the  drawee  would  naturally  be  to  procrastinate,  and 
possibly  this  would  be  its  inclination.  It 
Mon,-snb-  g^^^g  ^^  ^^  settled  by  all  of  the  authorities 
that,  "for  the  purposes  of  collection,  the 
coUectino-  bank  must  employ  a  suitable  subag-ent.  It 
must  not  transmit  its  checks  or  bills  directly  to  the 
bank  or  party  by  whom  payment  is  to  be  made,  with 
the  request  that  remittances  be  made  therefor.  It  is 
considered  that  no  firm,  bank,  corporation,  or  individual 
can  be  deemed  a  suitable  agent,  in  contemplation  of 
law,  to  enforce  in  behalf  of  another  a  claim  against  it- 
self." 1  Daniel,  Neg.  Inst.  328a  ;  3  Am.  &  Kng-.  Enc. 
Law  (2d  Ed.)  809  ;  Drovers'  Nat.  Bank  v.  Anglo- 
American  Packing  &  Provision  Co.,  117  111.  100,  7  N. 
E.  601  ;  BanJi  v.  Goodman,  109  Pa.  St.  422,  2  Atl.  687  ; 
Wagner  v.  Crook,  167  Pa.  St.  259,  31  Atl.  576  ;  Bank 
V.  Burns.  12  Colo.  539,  23  Pac.  714  ;  Anderson  v.  Rog- 
ers, 53  Kan.  542,  36  Pac.  1067.  See  note  to  this  last 
case  in  27  Lawy.  Rep.  Ann.  248,  in  which  the  author- 
ities are  carefully  considered.  The  truth 
siime-saiiif-  of  the  remark  as  to  the  un suitability  of  the 
limiting  Liability,  j^awee  of  a  check  as  the  agent  selected  to 
enforce  its  collection,  and  what  may  be 
expected  if  the  practice  is  upheld,  is  well  illus- 
trated by  the  facts  now  before  us.  As  before  stated, 
the  check  must, in  due  course  of  mail,  have  reached 
Mapleton  on  the  morning  of  July  31st.  Had  it  been 
in  the  hands  of  a  properly  designated  third  party,  it 
would  have  been  presented  and  paid  that  day. 
The  proceeds  would,  if  promptly  transmitted,  have 
reached  defendant  on  the  morning  of  August  1st  or  2d. 
Even  if  the  payment  had  then  been  made, as  it  finally  was, 
in  a  check  upon  the  Mankato  Bank,  and  defendant  had 
pursued  the  course  it  did  as  to  its  collection,  no  loss 
would  have  resulted.  But  instead  of  accounting  for  the 
Norton  check,  so  that  defendant  would  receive  the  pro- 
ceeds as  early  as  August  2,  the  Mankato  check  was  made 
out  on  August  4th,  and  came  to  defendant's  hands  the 


B  CAS]  COLLECTKJNS  289 

Minneapolis  Sash  &  Door  Co.  v.  Metropolitan  Bank 

next  day.  With  sufficient  funds  in  its  hands  to  meet 
the  check,  the  Mapleton  Bank  postponed  a  remittance 
for  three  days,  and  then  sent  a  check,  which  proved  to 
be  worthless  when  seasonably  presented  for  payment, 
2.  We  have  stated  the  ofrounds  upon  which  defend- 
ant attempts  to  justify.  It  did  show  that  it  was  usual 
and  customary  for  banks  to  send  checks  and  drafts, 
payable  by  other  banks  at  distant  points,  to 
the  drawee  direct,  and  by  mail,  provided  cSftom.^'"^'"""' 
there  was  no  other  bank  of  g-ood  standino-  in 
the  same  town,  while  plaintiif  was  allowed  to  prove 
that  an  express  company,  whose  business  it  was  to 
collect  and  transmit  money,  had  offices  in  both  places.. 
We  fail  to  see  vv'hat  possible  effect  upon  a  case  of  this 
kind  the  fact  that  the  drawee  is  the  only  bank  in  gfood 
standing-  in  the  town  can  have  upon  the  duty  of  a  bank 
which  undertakes  a  collection.  Any  reason  for  such  a 
course  is  equally  as  sound  where  there  are  two  or  more 
banks  in  the  town  as  where  there  happens  to  be  but 
one.  While  the  syllabus  of  one  of  the  cases  cited  in 
support  of  counsel's  proposition  (Wheeled  Scraper  Co. 
V.  Sadiek,  50  Neb.  105,  69  N.  W.  765),  may  justify 
him,  the  opinion  does  not.  We  cannot  ag^ree  with  coun- 
sel that  the  usage  and  custom  here  relied  upon  is  a  de- 
fense to  the  claim  that  defendant  was  negligent  when 
forwarding-  this  check  to  the  Mapleton  Bank  for  pre- 
sentation and  payment.  As  a  g-eneral  rule,  usag-e  and 
custom  will  not  justify-  neglig^ence.  It  may  be  admit- 
ted that  such  a  course  is  frequently  adopted,  but  it  must 
be  at  the  risk  of  the  sender,  who  transmits  the  evidence 
of  indebtedness  upon  which  the  right  to  demand  pay- 
ment depends,  to  the  party  who  is  to  make  the  payment. 
Such  a  usage  and  custom  is  opposed  to  the  policy  of  the 
law,  unreasonable  and  invalid.  It  was  so  decided  in 
Drovers'  Nat.  Bank  v.  Anglo-American  Packing-  & 
Provision  Co.  and  Bank  i'.  Groodrm-xi,  supra.  Counsel 
for  defendant  has  cited  two  cases  from  the  Engflish  Law 
Reports  and  three  from  the  New  York  Court  of  Appeals 
as  authority  upon  this  question.  An  examination  of 
these  cases  will  show  that  this  exact  question  was  not 

B  CAS— 19 


290  COIyLECTlONS  [vol  I 

Guignon  v.  First  Nat.  Bank  of  Helena 

decided.     See  27   Law}-.    Rep.   Ann.  248,  note,  supra. 

3.  Counsel  for  defendant  also  urges  that  plaintiff 
•ouw-ht  not  to  recover,  because  the  result  would  have 
been  the  same  had  another  correspondent  been  selected 
to  present  the  check.  This  assumes  that  a  third  part}' 
would  have  waited  until  Aug-ust  4th  for  payment,  and 
then  would  have  accepted  a  check  upon  the  Mankato 
Bank  as  payment,  which  would  have  been  transmitted 
to  defendant  AutrustSth.  Such  an  assumption  reflects 
seriously  upon  the  ordinar}^  methods  of  bank  officers, 
and  is  without  foundation.  Primarily,  the  loss  to  plain- 
tiff grew^out  of  the  fact  that  defendant  negligently  se- 
lected an  unsuitable  party  to  present  the  check,  the 
payee,  to  compel  payment,  or,  in  case  of  refusal,  to  pro- 
tect its  rights,  as  against  Norton,  by  due  protest  and 
notice  of  nonpayment.  We  need  not  discuss  the  further 
contention  that  payment  of  the  Norton  check  could  onl}' 
be  made  in  money.  The  order  refusing  a  new  trial  is 
reversed,  and,  on  the  findings  of  fact,  judgment  must 
be  ordered  in  plaintiff  *s  favor  in  the  court  below,  unless 
such  court,  in  its  discretion,  grants  a  new  trial. 

Start,  C.  J.  I  dissent.  Under  the  undisputed  evi- 
dence in  this  case,  as  to  the  universal  custom  of  banks 
in  collecting  paper  drawn  upon  a  bank  in  good  stand- 
ing, which  is  the  only  bank  at  the  place  of  its  location, 
it  cannot  in  my  opinion  be  held,  as  a  matter  of  law, 
negligence  for  the  collecting  bank  to  send  the  paper  to 
the  drawee  bank  for  collection. 


Guignon 


First  Nat.  Bank  of  Helena  et  al. 

{Siipreuie  Court  of  Montatia,  Feb.  6,  iSgg.) 

■Collections — Whether    Agent   or    Debtor.* — The   defendant    bank 
received  from   plaintiff   a   draft   deposited  by  him  with  directions  to 

*See  notes  at  end  of  case. 


B  CAS]  COLLECTIONS  291 

Guignoti  V.  First  Nat.  Bank  of  Helena 

collect  and  notify  plaintiff  and  not  for  credit.  A  receiver  was 
appointed  for  defendant  before  plaintiff  was  paid  anj-  part  of  the 
amount  of  the  draft.  Defendant  was  not  indebted  to  its  corre- 
spondent at  the  time  the  latter  collected  the  draft,  and  did  not 
become  indebted  to  it  subsequently,  and  the  balance  paid  \iy  the 
correspondent  into  the  hands  of  the  receiver  exceeded  the  amount 
of  the  draft.  Held,  that  the  fact  that  plaintiff,  when  he  deposited 
the  draft,  had  an  open  account  with  defendant  subject  to  check  did 
not  chang-e  the  bank's  relation  to  defendant  from  that  of  ag-ent  to 
that  of  debtor  in  regard  to  the  draft,  whether  or  not  the  amount  of 
the  draft  was  credited  to  plaintiff"  on  defendant's  books. 

Insolvency  of  Bank — Trust  Funds. —  The  amount  of  the  draft 
collected  by  defendant's  correspondent  so  far  retained  its  identity 
as  to  be  traceable  to  the  hands  of  the  receiver,  and  plaintiff  has  a 
preferential  claim  against  the  funds  in  the  hands  of  the  receiver 
for  the  amount  collected  on  the  draft. 

Receiverships — Interest.*— It  would«be  an  injustice  to  other  creditors 
to  allow  plaintiff'  interest  for  the  time  such  amount  was  withheld  bj^ 
the  receiver  in  order  to  obtain  instructions  as  to  his  dutj-  in  the 
premises. 

Appeal  by  all  parties  from  Lewis  and  Clarke 
county  district  court.     Afflniicd. 

On  Aug-ust  8,  1896,  plaintiff  deposited  with  the 
First  National  Bank  of  Helena,  Mont,  (hereinafter 
called  the  "National  Bank"),  a  draft  for  i^400  on  the 
Standard  Bank  of  South  Africa,  of  London, 

T-v        -1         1  -ji-        i  J-  i  iii'i  t''"*f  Stated. 

Lng-land,  with  instructions  to  collect  it, 
and  notify  him.  At  this  time,  and  thereafter  until 
September  4,  1896,  the  National  Bank  was  solvent, 
and  doing-  a  g-eneral  banking-  business.  Melville, 
Fickus  &  Co.,  bankers,  of  London,  Engfland  (herein- 
after designated  as  the  "London  Bank"),  were  the 
correspondents  of  the  National  Bank,  and  each  house 
had  current  accounts  with  the  other  on  its  books.  It 
was  the  custom,  observed  by  them,  for  each  bank,  upon 
making  a  collection  for  the  other,  to  credit  it,  as  soon 
as  made,  upon  its  own  books,  and  notify  the  other  by 
letter  of  its  action.  The  other  would  thereupon  charg^e 
the  collecting-  bank  with  the  amount  so  collected.  On 
Aug-ust  8th,  the  plaintiff's  draft  was  forw^arded  by  the 
National  Bank  to  the  London  Bank  for  collection  in 
the  usual  course.  The  London  Bank  collected  the 
draft  on  Aug-ust  21st,  and  thereupon,  on  the  same  da3^ 
notified  the  National  Bank  bv  letter  that  it  had  credited 


292  COLLECTIONS  [vOL  I 

Guignon  v.  First  Nat.  Bank  of  Helena 

the  amount.  On  September  2d  this  letter  was  received, 
and  on  the  same  day  the  National  Bank  wrote  the 
London  Bank,  approving*  its  action,  and  notifying-  it 
that  the  National  Bank  had  charg-ed  the  amount  to  the 
London  Bank.  This  chargfe  was  made  that  day. 
From  Aug-ust  21st  until  September  3d  the  two  banks 
continued  business  as  usual,  making-  drafts  upon  each 
other,  but  the  volume  of  this  business  does  not  appear, 
except  as  hereinafter  stated.  From  Aug-ust  21st  to 
September  4th  the  National  Bank  did  a  larg-e  volume 
of  g-eneral  business,  foreign  and  domestic,  amounting^ 
to  from  $75,000  to  5200,000  and  upwards  daily.  On 
September  4th  the  National  Bank  failed  to  open  its 
doors.  On  September  15th  the  defendant  Wilson,  in 
chargfe  of  it  as  examiner,  called  upon  the  London  Bank 
for  the  credit  on  its  books  in  favor  of  the  National 
Bank.  This  balance,  amounting- to  £MS  14s.  4d.,  was 
paid  to  Wilson,  the  receiver,  on  October  26,  1896.  It 
was  larg-er  than  the  balance  shown  by  the  books  of  the 
National  Bank,  because  two  drafts  had  been  drawn  by 
the  National  Bank  ag-ainst  its  London  balance  three  or 
four  days  before  suspension,  and  credited  on  its  own 
books,  but  had  not  been  paid  by  the  London  Bank. 
These,  tog-ether,  amounted  to  $38.60.  At  the  time  the 
National  Bank  closed  its  doors  it  had  on  hand  in  cash 
$4,343.72.  The  National  Bank  paid  plaintiff  no  part 
of  the  amount  of  the  draft,  nor  has  he  been  paid  any 
part  of  it  by  any  one.  The  defendant  Wilson  was 
subsequently  made  receiver  of  the  National  Bank.  On 
Aug-ust  8th,  and  thereafter  until  the  National  Bank 
closed  its  doors,  the  plaintiff  had  an  account  with  it 
open  to  check.  Demand  was  made  upon  Wilson  by  the 
plaintiff  herein  for  the  amount  collected  from  the  Lon- 
don Bank,  but  this  demand  was  denied.  The  court 
below  found  upon  these  facts  that  from  and  after 
Aug-ust  21st  until  September  4th  the  London  Bank 
had  a  continuous  balance  in  favor  of  the  National  Bank 
upon  its  books  of  more  than  the  amount  of  plaintiff's- 
draft;  that  the  relation  of  principal  and  agent  between 
plaintiff  and  defendant  bank  had  never  been  converted 


B  CAS]  COLLECTIONS  293 

Guignon  v.  First  Nat.  Bank  of  Helena 

into  the  relation  of  debtor  and  creditor;  that  plaintiff 
had  a  preferential  claim  ao-ainst  the  funds  in  the  hands 
of  the  receiver  because  of  the  payment  by  the  London 
Bank  into  his  hands  of  the  balance  on  its  books;  and 
that  he  was,  therefore,  entitled  to  recover  from  the 
receiver  the  sum  of  SI, 928,  the  full  amount  of  his  claim, 
without  interest,  because,  if  interest  were  allowed,  it 
w^ould  be  drawn  from  the  jj-eneral  assets  of  the  bank. 
From  this  judo^ment  both  parties  appeal. 

J.  M.  Clements,  for  plaintiff. 
William  Wallace,  for  defendants. 

Brantly,  C.  J.  (after  stating-  the  facts).     The  de- 
fendants assign  as  error  that  the  facts  found   will  not 
support  the  judg*ment.     The  plaintiff  insists  that  he 
should  be  allowed  interest.     It  will  be  seen 
from  the  statement  of  facts  that  the  relation  eoiiections- 

I.  ...  1  ,  iii'ii     Whether  Agent  or 

01  principal  and  agent  was  established  Debtor. 
between  the  plaintiff"  and  the  National  Bank 
by  the  transaction  between  them  on  August  8th,  1896. 
The  draft  was  deposited  with  directions  to  collect  and 
notify  plaintiff,  and  not  for  credit.  Thoug-h  the 
plaintiff  at  that  time  had  an  open  account  with  the  bank 
subject  to  check,  this  fact  is  of  no  weig^ht  in  view  of 
the  specific  directions  gfiven  by  him.  Furthermore, 
the  record  does  not  show  that  the  defendant  bank  ever 
gave  notice  to  the  plaintiff,  or  credited  him  with  the 
amount  of  the  collection.  In  our  view  of  this  case,  the 
mere  act  of  crediting  the  amount  to  the  plaintiff  upon 
the  books  of  the  defendant  bank  would  not  change  the 
relation  of  the  bank  to  plaintiff  from  that  of  agent  to  that 
of  debtor  until  it  had  actually  received  the  money  from 
the  London  Bank.  The  plaintiff  could  still  pursue 
the  funds  in  the  hands  of  the  latter  so  long"  as  he  could 
identify  them.  The  title  to  the  draft  did  not  pass  to 
the  National  Bank.  We  conclude  also  that  the  fact 
that  its  office  was  that  of  a  mere  collecting  ag*ent  was 
communicated  to  its  subag-ent  in  London,  because  we 
must  presume,  in  the  absence  of  proof  to  the  contrar}', 
that  it   obeved    its    instructions,    and    transmitted   the 


294  COLLECTIONS  [vOL  I 

Guig-non  v.  First  Nat.  Bank  of  Helena 

draft  for  collection  as  plaintiff's  agent.  The  subag-ent 
bank  must  therefore  have  understood  the  nature  of  the 
transaction  upon  receipt  of  the  draft.  The  ritrht  of 
the  plaintiff  to  have  his  claim  paid  as  a  preferential 
one  out  of  the  fund  collected  by  the  receiver  from  the 
London  Bank  therefore  depends  upon  whether  the 
facts  in  the  case  show  that  the  i^400  collected  by  the 
London  Bank  so  far  retained  its  identity  that  it  is 
traceable  to  the  hands  of  the  receiver.  No  money  was 
remitted  to  the  National  Bank  by  the  London  Bank. 
Therefore  the  duties  of  the  latter  were  not  fully  dis- 
charofed  up  to  the  time  the  former  closed  its  doors. 
The  London  Bank  could  only  receive  cash  in  payment 
of  the  draft,  and  it  could  only  discharg-e  its  dut}^  by 
remitting-  the  cash  collected  to  the  National  Bank. 
Ward  t'.  Smith,  7  Wall.  452;  Levi  v.  Bank,  5  Dill.  104, 
Fed.  Cas.  No.  8,289;  First  Nat.  Bank  i\  First  Nat. 
Bank,  76  Ind.  561;  Henderson  t-.  O'Conor,  106  Cal. 
385,  39  Pac.  786;  2  Morse,  Banks,  §  568;  Evansville 
Bank  v.  German-American  Bank,  155  U.  S.  556,  15 
Sup.  Ct.  221.  It  is  true  that  if  the  National  Bank  had 
been  indebted  to  the  London  Bank  at  the  time  the 
collection  was  made,  and  credit  had  been  given  by  the 
latter  to  the  former  in  settlement  of  this  indebtedness 
before  the  former  closed  its  doors,  this  would  have 
been  equivalent  to  a  transmission  of  the  funds  to  the 
National  Bank.  It  would  also  have  been  a  complete 
conversion  of  the  money.  Bank  v.  Armstrong,  148 
U.  S.  50,  13  Sup.  Ct.  533;  EvansviUe  Bank  v.  GeVman- 
American  Bank,  155  U.  S.  556,  15  Sup.  Ct.  221;  Bank 
V.  Beak  50  Fed.  355;  3  Am.  &  Eng-.  Enc.  Law  (2d 
Ed.)  818.  But  this  was  not  the  condition  of  thing's  in 
this  case.  The  National  Bank  was  not  indebted  to  the 
London  Bank  at  the  time  of  the  collection  of  the  draft. 
It  did  not  become  so  indebted  at  any  time  afterwards. 
The  collection  was  made  on  August  21st,  and  credited. 
The  National  Bank  received  notice  on  September  2d, 
and  charg-ed  the  London  Bank  with  it.  The  National 
Bank  closed  its  doors  on  September  4th.  At  this  time 
there  was  charged  to  the  London  Bank  £A1S  14s.  4d., 


B  CAS]  COLLECTIONS  295 

Guignon  v.  First  Nat.  Bank  of  Helena 

or  its  equivalent  in  American  money,  less  two  drafts, 
amounting-  to  S38.60,  drawn  and  credited  three  or 
four  days  before  that  date.  On  October  26,  1896,  the 
London  Bank  paid  the  receiver  the  full  amount  of  thi& 
credit,  because  it  had  not  paid  the  two  drafts.  There- 
fore there  must  have  been  a  continuous  balance  upon 
the  books  of  the  London  Bank  from  Aug-ust  21st  until 
it  was  collected  by  the  receiver  of  £MS  14s.  4d.,  for  it 
does  not  appear  that  any  other  draft  was  drawn  by 
either  bank  upon  the  other,  or  that  any  collection  was 
made  by  either  and  charg-ed  or  credited  after  Aug-ust 
21st.  It  therefore  appears  that  the  balance  in  the 
hands  of  the  London  Bank  must  necessarily  have  been 
made  up  of  the  amount  of  the  collection  upon  plaintiff's- 
draft  with  other  money  theretofore  collected.  The 
burden  rests  upon  the  plaintiff  to  establish  his  claim. 
Bank  v.  Austin,  48  Fed.  25;  Silk  Co.  v.  Flanders 
(Wis.)  58  N.  W.  383;  5  Thomp.  Corp.  ^  7104.  In  2 
Pom.  Kq.  Jur.  §  1058,  the  rule  is  stated:  "No  chang-e 
in  the  form  of  the  trust  property,  effected  by  the 
trustee,  will  impede  the  rig-hts  of  the  beneficial  owner 
to  reach  it  and  to  compel  its  transfer,  provided  it  can 
be  identified  as  a  distinct  fund,  and  is  not  so  mingled 
up  with  other  moneys  or  propertv  that  it  can  no  long-er 
be  specifically  separated.  *  ■*  ""  The  existence  of 
a  constuctive  trust,  as  of  a  resulting-  one,  must  be 
proved  by  clear, unequivocal  evidence."  The  facts  found 
by  the  court  below  show  that  the  plaintiff  had  success- 
fully met  the  oblig-ation  cast  upon  him  to  show  that  his 
property,  as  a  specific  fund,  passed  into  the  hands  of 
the  receiver.  The  receiver  has  in  his  hands  the  money 
thus  belonging-  to  the  plaintiff.  The  court  below  ren- 
dered judgment  for  the  full  amount  of  the 
sum  collected,  but  allowed  no  interest.  Ks"'"'''" 
This  we  think  correct.  We  have  no  statu- 
tory provision  strictly  applicable  to  such  cases,  and  we 
think  it  inequitable  that  the  assets  in  the  hands  of  the  re- 
ceiver to  which  the  general  creditors  must  resort  should 
be  taken  to  pay  interest  on  the  sum  so  withheld  by  the 
receiver  until  he  could  be  advised  as  to  his  duty  in  the 
premises.     The    discretion    of    the    lower    court    was 


2%  COLLECTIONS  [vOL  I 

Notes 

wisely  exercised  in  this  particular,  and  we  shall  not  in- 
terfere. The  judgment  will  therefore  be  affirmed. 
Affirmed. 

Hunt  and  Pigott,  JJ.,  concur. 

NOTES. 

Paper  Indorsed  for  Collection. — If  the  lang-uage  of  the  indorse- 
ment indicates  that  the  assignor  does  not  intend  to  pass  the  title  to 
the  paper,  the  relation  of  agency  must  of  necessity  continue  until, 
by  the  consent  of  the  assignor,  either  explicit  or  legitimatel3' implied, 
the  agency  has  ended  by  the  establishment  of  the  relation  of  debtor 
and  creditor.  Thus,  where  the  indorsement  is  expressed  to  be  "for 
collection,''  it  has  been  held  that  the  assignor  has  intended  to  retain 
his  ownership  in  the  paper. 

United  States. — Commercial  Nat.  Bank  v.  Armstrong,  148  U.  S. 
50  ;  Bank  of  Metropolis  v.  Jersey  City  Nat.  Bank,  22  Blatchf . 
(U.  S.)  58  ;  /«  /-d'  Armstrong,  33  Fed.  Rep.  405;  Circleville  First 
Nat.  Bank  v.  Monroe  Bank,  33  Fed.  Rep.  408;  Levi  z'.  National 
Bank,  5  Dill.  (U.  S.)  107  ;  National  Bank  v.  Merchants'  Nat.  Bank, 
91  U.  S.92. 

Georgia. — Central  R.  Co.  v.  Lvnchburg  First  Nat.  Bank,  73  Ga. 
383. 

Kansas. — Prescott  v.  Leonard,  32  Kan.  142. 

Kentucky. — Armstrong  v.  Bovertown  Nat.  Bank,  90  Kv.  431. 

Blary land. ~^eci\  Bank  v.  Farmers'  Bank,  22  Md.  148;  Tyson  v. 
Western  Nat.  Bank,  77  Md.  412. 

Massar/iusetts. — Manufacturers'  Nat.  Bank  v.  Continental  Bank, 
148  Mass.  553.  12  Am.  St.  Rep.  598;  Freeman's  Nat.  Bank  v.  Na- 
tional Tube  Works  Co.,  151  Mass.  413,  21  Am.  St.  Rep.   461. 

H/inncsota. — Rock  County  Nat.  Bank  z'.  Hollister,  21  Minn.  385  ; 
Merchants'  Nat.  Bank  z'.  Hanson,  33  Minn.  40,  53  Am.  Rep.  5 ; 
Syracuse  Third  Nat.  Bank  v.  Clark,  23  Minn.  263. 

Mississippi. — Ryan  v.  Paine,  66  Miss.  678  ;  Kinney  z'.  Paine,  68 
Miss.  258. 

Missouji. — -Bury  v.  Woods,  17  Mo.  App.  245  ;  Millikin  v.  Shapleigh, 
36  Mo.  596,  88  Am.  Dec.  171  ;  Mechanics'  Bank  v.  Valley  Packing 
Co.,  70  Mo.  643. 

Nezv  Jersey.— YLof[va3.n  v.  Jersey  City  First  Nat.  Bank,  46  N.  J.  L. 
604. 

N'ezv  York. — National  Butchers,'  etc..  Bank  v.  Hubbell,  117  N.  Y. 
384,  15  Am.  St.  Rep.  515. 

Ohio.—Zones  v.  Kilbreth,  49  Ohio  St.  401. 

Rhode  Island.— Blaine  v.  Bourne,  11  R.  I.  119,  23  Am.  Rep.  429. 

7>.rfl5.— City  Bank  v.  Weiss,  67  Tex.  331,  60  Am.  Rep.  29. 

As  to  Effect  of  Crediting  Paper  as  Cash,  see  Taft  v.  Quinsiga- 
mond  Nat.  Bank  (Mass.),  ante,  p.  99  and  note.  p.  102. 

Insolvency  of  National  Bank— Interest  on  Claims  Pending  Admin- 
istration.— Under  the  National  Bank  Act  if  a  sufficient  fund  is  real- 
ized from  the  assets  to  pa^'  all  claims  against  the  bank,  and  to  leave 
■a  surplus,  the  comptroller  ought  to  allow  interest  on  the  claims, 
during  the  period  of  administration,  before  appropriating  the  sur- 
plus to  the  shareholders  of  the  bank.  Chemical  Nat.  Bank  v.  Bailey, 
12  Blatchf.  (U.  S.)  480,  1  Nat.  Bank  Cas.  260. 


B  CAS]  CHECKS  297 

Riverside  Bank  z'.  Woodhaven  Junction  Land  Co 


'  Riverside  Bank 

V. 

WooDHAVEN  Junction  Land  Co.  ct  al. 

{Supreme  Cotirt,  Appellate  Divisioti,  First  Departmeyit,  Nov.  ii,/8gS.) 

Deposited  Checks — Rights  of  Bona  Fide  Holders.* — A  bank  re- 
ceiving- from  a  depositor,  in  the  usual  course  of  business,  a  check 
•drawn  to  his  order,  before  its  inaturity,  is,  in  the  absence  of  evidence 
to  the  contrar)'.  entitled  to  presume  that  it  Avas  given  for  a  valuable 
consideration,  and  if,  under  such  circumstances,  the  bank  prac- 
tically purchases  such  check  by  pa^-ing  mone^-  on  the  faith  of  the 
tirst  mentioned  check,  on  a  check  drawn  by  such  "depositor  the  drawer 
of  the  first  mentioned  check  is  not  entitled  to  show  equities  existing 
between  the  drawer  and  drawee  at  the  date  of  the  check  to  defeat 
the  bank's  title  thereto.  And  in  an  action  on  the  check  against  the 
drawer,  the  fact  that  the  bank,  after  paj-ing  for  the  check,  charged 
the  amount  thereof  back  to  such  depositor  is  immaterial. 

Appeal   by  defendant  from  trial   term.     Afflrmcd. 

Arg-ued  before  Van  Brunt,  P.  J.,  and  McLaugh- 
lin, Patterson,  O'Brien,  and  Ingraham,  JJ. 

Louis  C.   Whito)i,  for  appellant. 
Lyman  L.  Scttcl,  for  respondent. 

Patterson,  J.  This  is  an  appeal  by  the  defendant 
land  company  from  a  judgement  entered  upon  a  verdict 
directed  by  the  court  on  the  trial  of  this  action.  A 
single  question  of  law  is  involved.  The  material  facts 
established  on  the  trial  are  the  following-  :  One  Andrews 
was  a  depositor  in  the  Riverside  Bank.  On  the  25th 
day  of  May,  1897,  he  deposited  with  that  bank  a  check 
for  the  sum  of  S450,  drawn  by  the  treasurer  of  the 
Woodhaven  Junction  Land  Compan}"  to  his  (Andrews') 
order.  The  check  was  indorsed  by  Andrews,  and 
deposited  without  any  limitation  ;  or,  in  other  words, 
it  became  part  of  Andrews'  general  deposit  account.  On 

*See  notes  at  end  of  case. 


298  CHECKS  [vol  r 

Riverside  Bank  v.  Woodhaven  Junction  Laud  Co 

the  day  of  that  deposit,  and  before  it  was  actually  made, 
Andrews  had  a  balance  of  $85  standing-  to  his  credit 
with  the  plaintiff.  Immediately  after  the  S450  check 
was  deposited,  Andrews  presented  his  own  check  for 
S500  drawn  lipon  the  plaintiff,  and  on  it  procured  that 
amount  to  be  paid  to  him  by  the  paying  teller  of  the 
bank.  The  S450  check  was  drawn  on  the  Bank  of 
Jamaica.  On  the  same  day,  the  plaintiff  sent  the  check 
to  the  Queens  County  Bank,  throug-h  which  it  made  its 
Long-  Island  collections.  It  was  presented  at  the  Ja- 
maica Bank  on  the  26th  day  of  May,  1897,  and  was  re- 
turned protested,  payment  having  been  stopped.  Some 
time  subsequently,  the  plaintiff  charged  back  to 
Andrews  the  amount  of  the  dishonored  check.  Shortl}^ 
afterwards  this  action  was  beg-un  against  the  land 
company  and  Andrews  to  recover  its  amount.  The 
defendant  land  company  admits  the  making-  of  its  check 
and  its  delivery  to  Andrew^s,  but  sets  up  that  the  same 
was  given  without  consideration,  or  for  a  consideration 
that  failed,  namely,  that  it  was  given  to  Andrews  in 
exchange  for  a  certain  other  check  of  one  Walter  Fox, 
and  upon  a  representation  made  by  Andrews  that  the 
Fox  check  was  g-ood,  but  it  avers  "that  said  check  was 
in  fact  worthless.  The  land  conipau}^  therefore  has 
set  up,  as  against  the  title  of  the  plaintiff  and  its  right 
to  recover,  certain  equities  existing  between  it  and 
Andrev^'s,  which  would  render  the  check  unenforce- 
able in  the  hands  of  Andrews,  and  the  claim  is  made 
that  it  is  also  nonenforceable  by  the  plaintiff. 

It  is  the  settled  law  of  this  state  that,  as  to  a  g-eneral 
deposit  account  of  a  dealer  with  a  bank,  the  relation 
existing  between  the  depositor  and  the  bank  is  simply 
that  of  creditor  and  debtor.  First  Nat.  Bank  of  Lvons 
V.  Ocean  Nat.  Bank,  60  N.  Y.  278  ;  ^tna  Nat.  Bank 
V.  Fourth  Nat.  Bank,  46  N.  Y.  82. 

The  title  to  mone}',  checks,  or  drafts  deposited  by  a 
customer  passes  to  the  bank.  The  relation  of  a  bank 
to  negotiable  drafts  or  checks  under  such  circumstances 
is  very  plainly  stated  in  Craigie  v.  Hadley,  99  N.  Y. 
133,  and  it  is  that,  upon  a  deposit  being  made  by  a  cus- 


B  CAS]  CHECKS  299 

Riverside  Bank  z'.  Woodhaven  Junction  Land  Co 

tomer  in  a  bank  in  tlie  ordinary  course  of  business  of 
money  or  drafts  or  checks  received  or  credited  as  money, 
tbe  title  to  the  money,  drafts,  or  checks  is  immediately 
vested  in  and  becomes  the  property  of  the  bank  ;  and 
it  is  stated  that  that  proposition  is  not  open  to  question. 
As  the  court  in  that  case  says  : 

"The  transaction,  in  legal  effect,  is  a  transfer  of  the 
money  or  drafts  or  checks,  as  the  case  ma}'  be,  b}"  the 
customer  to  the  bank,  upon  an  implied  contract  on  the 
part  of  the  latter  to  repay  the  amount  of  the  deposit 
upon  the  checks  of  the  depositor.  The  bank  acquires 
title  to  the  money,  drafts,  or  checks  on  an  implied 
agreement  to  pay  the  equivalent  consideration  when 
called  upon  by  the  depositor  in  the  usual  course  of 
business." 

The  question, therefore,  before  the  court,  was  whether 
the  defendant  land  company  could  show  equities  to 
defeat  the  plaintiff's  title.  The  check  was  a  neg^otiable 
instrument.  The  party  primarily  liable  upon  it  was 
the  land  company.  The  plaintiff  was  entitled  to  rely 
upon  the  presumption  that  it  had  been  issued  for  a 
valuable  consideration.  Laws  1897, c.  612,  §  50.  The 
plaintiff  was  a  holder  for  value.  It  had  taken  a  neg'o- 
tiable  check  of  the  land  company,  complete  and  regular 
upon  its  face,  and  in  the  usual  course  of  business,  and 
gave  value  for  it  ;  namely,  at  the  time  the  deposit  was 
made,  it  paid  to  Andrews  his  check  of  S500,  $415  of 
which  much  necessarily  have  been  paid  from  the  credit 
given  on  the  deposit  of  the  S450  check.  It  was  taken 
before  maturity,  for  a  check  is  not,  strictly  speaking, 
due  until  it  is  demanded  within  a  reasonable  time. 
Cruger  v.  Armstrong,  3  Johns.  Cas.  9  ;  Story,  Prom. 
Notes  (7th  Ed.^  686.  It  was  taken  in  good  faith,  and 
it  is  not  claimed  that,  at  the  time  it  was  negotiated, the 
plaintiff  had  notice  of  any  equity  existing  in  favor  of 
the  drawer,  or  of  any  infirmity  in  the  check,  or  defect 
of  title  or  right  in  the  person  negotiating  it.  The  proof 
establishing  all  these  considerations  being  in  the  case, 
the  defendant  land  company  was  not  in  a  position  to 
resist  the   plaintiff's  claim.     It  is  entirely  immaterial 


300  PROTEST  [vol  I 

First  Nat.  Bank  of  Manning-  v.  German  Bank  of  Carroll  Co 

that,  by  a  book-keeping-  entry,  the  plaintiff  subsequently, 
charg-ed  the  amount  of  the  check  back  to  Andrews.  Its 
cause  of  action  arising-  on  the  check  was  ag-ainst  both 
the  drawer  and  the  indorser,  and  the  claim  ag-ainst  the 
drawer  was  not  surrendered,  nor  was  it  released  because 
of  the  entry  referred  to. 

The  judgment  appealed  from  should  be  affirmed, 
with  costs.     All  concur. 

NOTES. 

Negotiable  Instruments— Absence  or  Failure  of  Consideration  — 
Bona  Fide  Holders. — In  the  case  of  a  negotiable  instrument,  the  ab- 
sence or  failure  of  consideration  is  no  defense  against  k  bona  fide 
holder  for  value  before  maturity.  Rahm  v.  Bridge  Co.,  16  Kans. 
530  ;  Scott  V.  Seely,  27  La.  Ann. "95  ;  Hawkins  v.  Neal,  60  Miss.  256  ; 
Matthews  v.  Crosbj-,  56  N.  H.  21  ;  Polhemus  v.  Ann  Arbor  Sav. 
Bank,  27  Mich.  44  ;  'Daniels  v.  Wilson,  21  Minn.  530  ;  Harris  v.  Brad- 
ley, 7  Yerg.  (Tenn.)  310  ;  Chicopee  Bank  v.  Chapin,  8  Mete.  (Mass.) 
40. 

Same— Credited  as  Cash— Withdrawal  of  Deposit  before  Notice  to 
Bank— Ownership  of  Paper.— Although  the  mere  crediting  of  an 
account  by  a  bank  to  its  depositor,  where  the  effect  of  the  credit  is 
only  to  increase  the  balance  due  the  depositor,  is  not  a  payment  and 
doe's  not  make  the  bank  a  purchaser  for  value,  yet  if,  before  re- 
ceiving notice  of  any  infirmity  in  the  paper,  it  paj-s  out  on  the 
checks  of  the  depositor  the  full  amount  due  him,  including  the  dis- 
count, it  thereby  becomes  a  purchaser  for  value  so  as  to  be  entitled 
to  full  protectio'n.  Pox  v.  Kansas  City  Bank,  30  Kan.  441  ;  Dreilling 
V.  Battle  Creek  First  Nat.  Bank,  43  Kan.  197,  19  Am.  St.  Rep.  126. 


First  Nat.  Bank  of  Manning 

V. 

German  Bank  of  Carroll  County  ct  al. 

(Supreme  Court  of  lozca,  Feb.  6,  iSgg.) 

Notice  of  Protest— Liability  for  Negligence  of  Notary.*— A  draft 
received  by  the  defendant  bank  for  collection  having  been  presented 
to  the  drawee,  and  payment  refused,  was  placed  in  the  hands  pf  a 
notary  public,  who  was  also  defendant's  cashier,  with  instructions 
to  protest  for  non-pa3'ment.  It  was  not  contended  that  defendant 
was  negligent  in   selecting  such  notary.     Held,   that  the   bank  was 

*See  notes  at  end  of  case. 


B  CAS]  PROTEST  301 

First  Nat.  Bank  of  Manning  :'.  German  Bank  of  Carroll  Co 

not  chargeable  with  the  notary's  negligence    in  failing  to  proniptlj' 
send  notice  of  protest. 

Same. — -A.  bank  is  not  chargeable  with  negligence  because  it  en- 
trusts to  a  notary  the  duty  of  sending  to  an  indorser  notice  of 
dishonor. 

Appeal  by  plaintiflF  from  Carroll  county  district  court. 
Affirmed. 

F.  M.  Pollers,  for  appellant. 
M.   W.  Beach,  for  appellee. 

Ladd,  J.  That  the  draft  was  sent  to  the  defendant 
bank  for  collection,  and  was  presented  to  the  drawee  for 
payment,  in  apt  time,  admits  of  no  doubt.  Hamlin  v. 
Simpson  (Iowa)  74  N.  W.  906.  The  exer- 
cise of  prudence  in  the  selection  of  a  notary  Jotifeorprotpst- 
public  is  not  questioned.  1  he  very  gnst  ot  ii^enceof  xotary. 
the  action  is  that  the  defendant  is  chargeable 
with  the  neg-lig^ence  of  that  officer  in  failing-  to  learn  of 
Farneman's  residence,  and  notify  him  of  the  dishonor 
of  the  draft.  But  a  notary  is  a  public  officer,  appointed 
by  the  chief  mag-istrate  of  the  state,  is  under  bond  for 
the  faithful  performance  of  his  duties  as  such, and  keeps 
a  public  record  of  his  acts,  certified  copies  of  which  may 
be  received  in  evidence.  Code,  S  373  et  seq.  He  is  not 
a  mere  ag^ent  of  the  bank,  but  a  public  officer  sworn  to 
properly  discharg^e  his  duties  to  the  public.  As  such 
officer,  the  bank  may  not  control  his  acts,  nor  dictate  in 
what  manner  he  shall  perform  his  duties.  If  g"uilty  of 
malfeasance  in  the  performance  of  an  official  act,  he, 
and  not  the  bank,  is  responsible.  That  this  notary  was 
also  an  employee  of  the  bank  can  make  no  difference. 
When  acting-  as  such  officer,  he  was  not  dischargfing- 
his  duties  as  servant.  The  positions  were  distinct,  and 
his  acts  in  the  capacity  of  an  officer  of  the  state  had  no 
connection  with  the  services  he  owed  the  bank.  Agfain, 
the  defendant  was  a  mere  ag-ent  for  the  collection  of  the 
draft,  and,  owing-  to  its  dishonor,  deposited  it  with  a 
notary  for  protest.  "A  subag-ent  is  accountable,  ordi- 
narily, only  to  his  superior  agent,  when  employed  with- 
out the  assent  or  direction  of  the  principal.  But,  if  he 
be  employed  with  the  express  or  implied  assent  of  the 


302  PROTEST  [vol  I 

First  Nat.  Bank  of  Manning-  v.  German  Bank  of  Carroll  Co 

principal,  the  superior  ao-ent  will  not  be  responsible  for 
his  acts.  There  is,  in  such  a  case,  a  privity  between 
the  subag-ent  and  the  principal,  who  must,  therefore, 
seek  aremedy  directly  ag-ainst  the  subag-ent  for  his  neg-- 
lig-ence  or  misconduct."  Guelich  t'.  iBank,  56  Iowa, 
435,  9  N.  W.  328.  In  making-  such  collections  it  is 
usual  to  employ  a  notary,  and,  in  forwarding-  the  draft, 
there  was  an  implied  direction  to  do  so,  if  necessary. 
See  Mount  v.  Bank,  37  Iowa,  457.  If  the  defendant 
exercised  prudence  in  making-  the  selection,  its  respon- 
sibility ended.  This  is  all  it  could  have  done  had  the 
draft  been  its  own,  and  surely  it  will  not  be  held  to  a 
hig-her  deg^ree  of  care  when  acting'  for  others.  Bald- 
win V.  Bank,  1  La.  Ann.  13  :  Bank  i'.  Howell,  8 
Md.  530  ;  Hyde  z\  Bank,  17  La.  560 ;  Tiernan 
r.  Bank,  7  How.  (Miss.)  648;  Bellemire  v.  Bank, 
4  Whart.  105  ;  Britton  v.  Niccolls,  104  U.  S.  766  ;  War- 
ren Bank  v.  Suffolk  Bank,  10  Cush.  582  ;  Stacy  v. 
Bank,  12  Wis.  629?  May  r.  Jones,  88  Ga.  308,  14  S. 
K.  552  ;  Ag-riculturial  Bank  v.  Commercial'  Bank,  7 
Smedes  &  M.  592  ;  Bank  :-.  Butler,  41  Ohio  St.  519  ; 
Mechem,  Ag-.  §  514.  While  there  is  a  conflict  in  opinion, 
the  rule  announced  is  sustained  by  the  weigfht  of  author- 
ity and  the  better  reason.  See  collection  of  cases  in  3 
Am.  &  Kng-.  Knc.  Law  (2d  Ed.)  808,  and  note  to  Ishan 
V.  Post  (N.  Y.  App).  38  Am.  St.  Rep.  775  (s.  c. 
35  N.  K.  1084)  ;  also  Allen  v.   Bank,  22  Wend.  215. 

The  distinction  between  a  foreigfn  and  an  inland  bill 
of  excliang-e  should  not  be  overlooked.  To  charg-e  the 
makers  and  indorsers,  the  former  must  be  protested. 
Not  so  with  the  latter.  All  that  is  required  is  a  de- 
mand, and,  on  refusal  to  pay,  notice  of  dishonor,  in 
order  to  fix  liability  of  the  indorsers  of  an  inland  bill  ; 
and  these  may  be  made  and  gfiven  b}'  the  holder,  or 
any  one  acting-  in  his  behalf.  By  the  law  merchant, 
g-iving-  notice  of  dishonor  is  no  part  of  notar^^'s  official 
duty,  and  when  he  does  so  he  is  merelv  acting-  as  ag-ent 
of  the  holder.  Swavze  i'.  Britton,  17  Kan.  625;  Allen 
V.  Bank,  22  Wend.  215  ;  Daniel,  Neg-.  Inst.  §  960. 
But    it    is    customary    for    him,  in  protesting-  a  bill,  to 


B  CAS]  PROTEST  303 

First  Nat.  Bank  of  Manning  v.  German  Bank  of  Carroll  Co 

g-ive  the  proper  notice  of  dishonor.  Prof.  Not.  §§  142, 
143.  And  in  many  of  the  states  the  law  merchant  is 
so  modified  that  he  is  required  to  g-ive  notice.  For- 
merly his  certificate  mio^ht  not  be  received  as  proof  of 
the  protest  of  an  inland  bill.  Case  t-.  HefFner,  10 
Ohio^  180.  By  section  378  of  the  Code,  "every  notary 
public  is  required  to  keep  a  true  record  of  all  notices 
g"iven  or  sent  by  him,  with  the  time  and  manner  in 
which  the  same  were  g-iven  or  sent  and  the  names  of 
all  the  parties  to  whom  the  same  were  given  or  sent, 
with  a  copy  of  the  instrument  in  relation  to  which  the 
notice  is  served  and  of  the  notice  itself."  Section  379 
requires  his  record  and  official  papers  to  be  filed  with 
the  clerk  of  the  court  upon  his  death,  resiofuation,  or 
removal,  and  provides  for  certified  copies.  Very 
evidently  this  is  for  the  purpose  of  perpetuating  proof 
of  the  notice  as  well  as  of  the  demand  and  protest. 
Section  3054  permits  a  notary  "to  inform  the  indorser 
or  any  party  to  be  charged,  if  in  the  same  town  or  town- 
ship, by  notice  deposited  in  the  nearest  post  office  to 
the  parties  to  be  charged,  on  the  da}^  of  the  demand, 
and  no  other  notice  shall  be  necessary  to  charg-e  such 
party."  The  advantag-e  in  having-  an  inland  bill  pro- 
tested by  a  notary,  and  notice  g-iven  by  him,  is  that 
the  evidence  is  thus  perpetuated  ;  and  notice  to  indor- 
sers  living  in  the  same  town  or  township  may  be  given 
by  mail,  instead  of  personally.  These  statutes  clearly 
recognize  giving-  notice  as  a  part  of  the  notar3"'s  official 
duty.  Indeed,  the  term  "protest"  is  ordinarily  used 
as  including-  the  entire  proceeding-  necessary  to  charge 
indorsers.  Notaries  are  nearh^  alwa\^s  resorted  to  for 
this  work,  and  the  owner  of  the  draft  may  be  assumed 
to  have  intended  this  course  to  be  pursued.  As  said  in 
Tiernam  v.  Bank  :  "No  ag-ent  could  have  been  selected 
with  more  propriety  for  the  performance  of  this  duty 
than  one  whose  profession  and  office  were  calculated 
to  fit  him  peculiarl}^  for  the  discharg-e.  The}'  are 
almost  universally  resorted  to  for  the  purpose.  We 
cannot  perceive,  therefore,  that  the  bank  was  wanting- 
either    in    the    deg-ree    of    skill    or    dilio-ence   which  is 


304  PROTEST  [vol  I 

Notes 

required  under  such  circumstances  to  exempt  an  ag-ent 
from  liabilit3^"  Baldwin  v.  Bank,  supra  ;  Hyde  v. 
Bank,  supra  :  Swedes  v.  Bank,  20  Johns.  384  ;  Belle- 
mire  V.  Bank,  4  Whart.  105,  1  Miles,  173  ;  Bank  v. 
Howell,  supra;  Fisher  v.  Bank,  7  Blackf.  610;  Turner 
V.  Rogers,  8  Ind.  139.  Bank  v.  Ober  (Kan.  Sup.) 
3  Pac.  324,  is  based  on  the  finding  that  the  statutes 
of  Kansas  do  not  authorize  the  notary  to  give  notice. 
Our  conclusion  rests  on  statutes  allowing  a 
notary,  as  such,  to  perform  this  duty. 
Surely,  the  bank  acted  prudently  in  intrusting  to  a 
public  officer  the  doing  of  that  which  was  incumbent 
on  him  as  an  officer  of  the  law  to  do.     Affirmed. 


Liability  of  Bank  for  Conduct  of  Notary — Prevailing  Doctrine. — In 

regard  to  the  liability  of  the  collecting- bank  for  the  manner  in  which 
a  notary  to  whom  bills  or  notes  are  delivered  for  presentment  and 
protest  discharges  his  duty,  there  is  a  conflict  of  opinion.  The  pre- 
vailing- doctrine  is  that  the  bank  is  not  liable  for  a  default  of  the 
notary  if  it  has  exercised  due  care  in  selecting-  a  reputable  notary, 
or  has  placed  the  instrument  in  the  hands  of  the  notary'  whom  it 
reg-ularlj^  employs  to  perform  this  service.  Britton  v.  Niccolls,  104 
U.  S.  757  :  May  v.  Jones,  88  Ga.  308,  30  Am.  St.  Rep.  154  ;  Citizens' 
Bank  v.  Howell,  8  Md.  530,  63  Am.  Dec.  714  ;  Warren  Bank  v.  Suf- 
folk Bank,  10  Cush.  (Mass.)  582;  Tiernan  v.  Commercial  Bank,  7 
How.  (Miss.)  648,  40  Am.  Dec.  83  ;  Agricultural  Bank  v.  Commercial 
Bank,  7  Smed.  &  M.  (Miss.)  592;  Bowling  v.  Arthur,  34  Miss.  41; 
Gallipolis  First  Nat.  Bank  v.  Butler,  41  Ohio  St.  519,  52  Am.  Rep. 
94;  Bellemire  v.  U.  S.  Bank,  4  Whart.  (Pa.)  105.  1  Miles  (Pa.)  173, 
33  Am.  Dec.  46  ;  Stacy  v.  Dane  County  Bank,  12  Wis.  629. 

The  reason  for  this  doctrine  is  thus  explained  by  Lumpkin,  J.,  in 
May  V.  Jones,  88  Ga.  308,  2>o  Am.  St.  Rep.  154  ;  "The  notary  is  not  a 
mere  agent  or  servant  of  the  bank,  but  is  a  public  officer,  sworn  to 
discharge  his  duties  properly.  He  is  under  a  hig-her  control  than 
that  of  a  private  principal.  He  owes  duties  to  the  public  which 
must  be  the  supreme  law  of  his  conduct.  Consequently,  when  he 
acts  in  his  official  capacit3',  the  bank  has  no  longer  control  over 
him,  and  cannot  direct  how  his  duties  shall  be  done.  If  he  is  guilty 
of  misfeasance  in  the  performance  of  an  official  act,  the  bank  is  not 
liable.  •»  ■»  *  That  the  notar}'  is  also  an  employee  and  agent  of 
the  bank  does  not  alter  the  case.  There  is  still  a  sharp  dividing 
line  between  his  duties  as  agent  and  his  duties  as  a  public  officer. 
When  his  public  service  comes  into  plaj^,  his  private  service  is,  for 
the  time,  suspended." 

In  an  action  against  a  bank  for  negligence  in  not  making  neces- 
sary demand   and  protest  of  a    note  left   with  it   for   collection,  the 


B  CAS]  PROTEST  '  305 

Notes 

bank,  by  showiog-  the  deliverj'  of  the  note  to  a  notary  public  for  de- 
mand and  protest  in  due  time,  is />r/;;/ay"ar/t' exonerated  from  liability. 
It  is  not  sufficient  for  the  plaintiff  to  prove  in  general  terms  that 
the  notary  was  a  man  of  dissipated  habits.  To  rebut  such  prima 
facie  case,  proof  must  be  offered  that  the  notary  was  drunk  at  the 
time  the  note  was  given  to  him,  or  that  his  habits  were  so  univer- 
sally ii;itempera-te  as  to  disqualify  him  for  the  discharge  of  an  offi- 
cial act.  Agricultural  Bank  v.  Commercial  Bank,  7  Smed.  &  M. 
(Miss.)   592. 

In  Louisiana  the  established  doctrine  is  that  where  a  bank  in 
which  a  note  has  been  deposited  for  collection,  in  case  of  nonpa}'- 
ment,  places  it  for  protest  in  the  hands  of  the  notary  to  whom  its 
own  business  is  uniformly  intrusted,  it  will  not  be  responsible  for 
the  failure  of  the  notary  to  protest  the  note,  or  to  notify  the  proper 
parties.  Having  shown  the  same  care  and  attention  in  the  manage- 
ment of  the  business  intrusted  to  it  which  men  of  common  prudence 
bestow  on  their  own  affairs,  it  is  not  answerable  for  the  neglect  of 
the  notary.  Baldwin  v.  State  Bank,  1  La.  Ann.  13,  45  Am.  l3ec.  72  ; 
Hyde  v.  Planters'  Bank,  17  La.  560,  36  Am.  Dec.  621  ;  Frazier  v. 
New  Orleans  Gas  Light,  etc.,  Co.,  2  Rob.  (La.)  296. 

In  Baldwin  v.  State  Bank,  1  La.  Ann.  15,  45  Am.  Dec.  72,  the 
court,  by  Slidell,  J.,  said:  "The  plaintiff  attempts  to  distinguish 
the  present  from  those  cases  [Hyde  v.  Planters'  Bank,  17  La.  566, 
36  Am.  Dec.  621  ;  Frazier  v.  New  Orleans  Gas  Light,  etc.,  Co.,  2 
Rob.  (La.)  296]  because  there  the  agency  was  governed  by  the  law 
of  Mississippi,  and  he  urges  that  in  that  state  a  notary  gives  a  bond 
to  the  state  which  is  available  to  any  party  injured.  It  is  true  that 
this  provision  of  the  law  of  that  state  was  adverted  to  in  the  Plan- 
ters' Bank  case,  but,  after  a  careful  perusal  of  the  opinion  of  the 
court,  we  do  not  consider  it  as  put  upon  that  narrow  ground,  nor 
that  the  circumstance  of  the  official  bond  was  an  essential  element 
in  the  decision." 

Some  older  cases  in  this  state  present  a  doctrine  which  is  ap- 
parently somewhat  in  conflict  with  that  of  the  cases  just 
cited.  In  Montillet  v.  U.  S.  Bank,  1  Martin  N.  S.  (La.)  365,  the 
defendant  was  sued  to  recover  damages  for  negligence  in  collecting 
a  note,  and  it  appeared  that  the  notary  employed  by  the  bank  to 
protest  the  instrument  was  guilty  of  negligence  in  notifying  the 
indorser,  who  was  thereby  discharged.  It  was  held  that  the  bank 
was  responsible  ;  that  the  notary,  in  undertaking  to  give  notice, 
did  so  as  a  private  individual,  and  that  it  constituted  no  part  of  his 
official  duties.  Miranda  v.  City  Bank,  6  La.  740,  26  Am.  Dec.  493, 
was  similar  to  and  was  decided  upon  the  authoritj'  of  the  case  last 
cited. 

Same— Minority  Doctrine. — In  some  states  it  is  held,  however,  that 
the  notary'  is  the  agent  of  the  bank,  and  that  the  bank  is  liable  for 
his  default.  Davev  v.  Jones,  42  N.  J.  L.  28,  36  Am.  Rep.  505  ;  Allen 
V.  Merchants'  Bank,  22  Wend.  (N.  Y.)  215,  34  Am.  Dec.  289  ;  Ayrault 
V.  Pacific  Bank,  47  N.  Y.  570,  7  Am.  Rep.  489  ;  Mead  v.  Engs,  5  Cow. 
(N.  Y.)  303;  Thompson  v.  State  Bank,  3  Hill  L.  (S.  Car.)  77,  30  Am. 
Dec.  354. 

In  Sniedes  v.  Utica  Bank,  20  Johns.  (N.  Y.)  372,  the  court  expressed 
a  doubt  whether,  if  the  bank  selected  a  competent  notary,  it  would 
be  liable  for  his  neglect,  since  notaries  are  officers  appointed  by  the 
state,  and  confidence  is  placed  in  them  by  the  government. 

B  CAS— 20 


306  TAXATION  VOL  I 

Linton,  Tax  Collector,  v.  Childs 

But  in  Allen  c'.  Merchants'  Bank,  22  Wend.  (N.  Y.)  215,  34  Am. 
Dec.  289,  it  was  held  that  the  notary,  at  least  when  not  acting-  in  a 
strictl}- official  capacity,  occupies  the  position  of  an  agent  to  whose 
discretion  his  emploj'ers  trust,  and  for  whose  neg-lect  they  are 
answerable.  In  delivering  the  opinion  of  the  court,  Senator  Ver- 
planck  said  :  "Notaries  are  commissioned  public  officers,  whose 
office  gives  to  their  notarial  attestation  a  peculiar  authority  and 
effect  according  to  the  law  or  negotiable  paper.  This  attestation 
it  is  their  duty  to  grant  when  directed  and  required.  But  they  are 
with  us,  also,  in  practice  the  agents  of  the  several  banks  in  whose 
employ  (in  the  phrase  used  in  evidence  here)  they  may  be.  As  such 
agents,  it  appears  that  business  connected  with  their  official  char- 
acter, yet  still  not  strictly'  official,  is  confided  to  them  ;  such  as 
-sending  notices  of  nonpayment  where  no  protest  is  required." 

In  Gerhardt  v.  Boatma'n's  Sav.  Inst.,  38  Mo.  60,  90  Am.  Dec.  407, 
the  notary,  whose  default  had  occasioned  the  suit,  had  been  regularly 
appointed  by  the  defendant  bank  by  the  3'ear,  and  had  been  required 
to  give  bond  for  the  faithful  discharge  of  his  duties.  Upon  this 
showing  the  court  held  that  the  defendant  bank  was  liable,  the 
notary  being  the  agent  of  the  defendant,  and  not  an  independent 
officer  in  the  execution  of  a  duty  devolved  upon  him  by  law.  To 
the  same  effect  is  Wood  River  Bank  z'.  Omaha  First  Nat.  Bank,  36. 
Neb.  744.  See  also  Thompson  v.  State  Bank,  3  Hill  L.  (S.  Car.)  77, 
30  Am.  Dec.  354.  And  co))iparc  Baldwin  v.  State  Bank,  1  La.  Ann. 
13,  45  Am.  Dec.  72. 


LiNTON,  Tax  Collector, 
Childs. 

\Suprenie  Court  of  Georgia,  Feb.  lo,  iSgg.) 

National    Bank    Presidents— Personal    Taxation — Constitutionality 

of  Statute.*— The  words  of  an  act,  which  imposes  a  tax  on  the 
presidents  "of  each  of  the  banks  of  the  state"  include  the  presidents 
of  all  banks  doing  business  in  the  state.  Such  an  act,  however,  is 
inoperative  when  sought  to  be  applied  to  the  presidents  of  national 
banking  associations  organized  under  the  acts  of  congress,  because 
tsuch  associations  are  iustrumentalities  created  by  congress,  and 
'designed  to  aid  in  the  administration  of  an  important  branch  of  the 
public  service.  The  business  of  such  an  association  not  being  sub- 
ject to  be  taxed  by  the  laws  of  a  state,  and  the  president  being  an 
^officer  prescribed  by  the  act  of  congress,  through  whom,  in  part,  the 
'business  of  the  association  must  be  carried  on,  a  tax  on  the  presi- 
■dent,  as  such,  would  tend  to  retard  and  burden  the  operation  of  the 
•law  which  provides  for  the  creation  and  maintenance  of  such  insti- 
tutions. 

(Syllabus  by  the  Court.) 

*See  note  at  end  of  case. 


B  CAS]  TAXATION  307 

Linton,  Tax  Collector,  i'.  Childs 

Error  by  plaintiff  from  Clarke  county  superior 
court.     AUirmcd. 

C.  H.  Brdnd,  Sol.  Gen.,  and  /.  M.  Terrell,  Atty. 
Gen.,  for  plaintiff  in  error. 

Joh,n  J.  Strickland  ?in6.  W.  A.  Whiibish,  for  defend- 
ant in  error. 

Little,  J.  The  payment  of  the  tax  soug-ht  to  be 
collected  was  resisted  by  the  president  of  a  national 
bank,  for  two  reasons  :  First,  that  the  legfislature,  by 
the  use  of  the  words  which  imposed  the  tax,  did  not 
intend  to  include  presidents  of  national  banks  ;  second, 
that,  if  the  leg-islature,  by  the  words  used,  meant  to 
impose  a  tax  on  presidents  of  national  banks,  the  act 
was  inoperative  and  void,  because  the  state  has  no 
power  to  limit  or  obstruct  the  business  of  national 
banks,  which  are  ag-encies  of  the  federal  government, 
and  the  imposition  of  a  tax  by  the  state  on  the  presi- 
dent of  a  national  bank  would  so  operate.  If  either  of 
these  contentions  be  true,  the  tax  sought  to  be  collected 
from  the  defendant  in  error  would  be  illegal.  It  is 
axiomatic  that  the  power  which  seeks  to  collect  a  tax 
must  show  clear  authority  to  do  so.  In  this  case,  the 
authority  shown  is  that  of  the  state,  a  power  sovereign 
in  its  character,  and,  unless  forbidden  by  its  own  con- 
stitution, or  an  interference  with  an  institution  created 
by  the  federal  government,  called  into  existence  for 
the  benefit  of  the  people  at  large,  such  power  manifestly 
exists.  The  words  of  the  act  impose  a  tax  of  $10  on 
the  president  "of  each  of  the  banks  of  the  state." 
Official  cognizance  will  be  taken  of  the  fact  that  there 
are  are  two  classes  of  banks  which  are  located,  operated, 
and  doing  business  in  the  state,  which  have  presidents, 
to  wit,  banks  organized  under  the  laws  of  this  state, 
and  banking  associations  created  under  the  laws  of  the 
United  States,  which  are  private  associations,  author- 
ized by  congress,  for  the  joint  purposes  of  convenience 
and  profit  to  the  holders  of  United  States  bonds,  and  of 
furnishing  the  public  with  a  convenient  and  uniform 
circulating  medium.     16   Am.  &  Eng.    Kuc.    Law,    p. 


308  TAXATION  [voiy  I 

Linton,  Tax  Collector,  v.  Childs 

144,  citing-  Van  Allen  v.  Assessors,  3  Wall.  573  ;  Stet- 
son V.  City  of  Bang-or,  56  Me.  274  ;  Mercantile  Bank  v. 
City  of   New   York,  121   U.    S.   138,  7  Sup.    Ct.  826  ; 
Flint  V.  Board,  99  Mass.  141.     There  can  be  no  ques- 
tion but  that  the   words    employed    in    the   act   which 
imposes  the  tax  are  broad  enoug-h  to  cover  the  presidents 
of  such  banks  as  have  been  org-anized  under  the  laws 
of  this  state,    because    such  are    certainly  banks  of  the 
state.     Such   institutions    not  only  do  business  in  the 
state,  are  protected  by  the  authority  of  the  state,  and 
have  access  to  the  courts  of  the  state,  but  are  created 
by  its  laws,  and  their  business  is  regfulated  by  leg-isla- 
tive  enactments  of  the  state.     But  it  is  not  to  be  held 
that,  while  org-anized    under    the  laws    of  the  g-eneral 
g-overnmeut,  national  banking-  associations  are  foreig-n 
corporations,    nor,    in    their    capacity   as    persons,  are 
aliens  ;  on  the    contrary,  such    associations   are  estab- 
lished and  located,  under  the  law  of  their  creation,  at 
a  certain   g-iven    locality  in    one    of  the    states  or  other 
political  divisions  of  the  United  States,  and  such  place 
or  point  is  distinctly  named  in  the  certificate  of  org-ani- 
zation  (Bank  v.  Baack,  1  Thomp.  Nat.  Bank  Cas.  161, 
2  App.  [U.  S.]  232,  8  Blatchf.  137,  Fed.  Cas.  No.  9,052  ; 
Main  v.  Bank,  6  Biss.   26,  Fed.    Cas.    No.  8,976),  and, 
for  jurisdictional  purposes,  are  to  be  treated  as  citizens 
of  the  state  within  which  they  are  located.     Such  asso- 
ciations are  not  otherwise  citizens  of  the  United  States. 
Bank  v.  Baack,  supra  ;  Gassies  v.  Ballon,  6  Pet.  761. 
Indeed,  the  business  of  a  national  banking-  association 
must  be  done  at  this  desig-nated  location,  and  it  cannot 
lawfully  do    business,  such  as    cashing-    checks  drawn 
upon  it,  elsewhere.     Armstrong- f.  Bank,  38  Fed.  883. 
So  that,  equally  with  state    banks,  national  banks  are 
citizens  of  the  state  in  which  they  are  located,  in  the 
sense    that   corporations  are    citizens,  and    this  result 
follows  from  the  act  which  created  such  associations. 
The  able  counsel   for  the  defendant  in  error,  who  fur- 
nished us  with  a  concise  and  comprehensive  brief  on  the 
points  involved,  refers  to  the  lang-uag-e  employed  in  the 
parag-raph  of  the  act  of  the  g-eneral  assembly  where  a  tax 


B  CAS]  TAXATION  309 

Linton,  Tax  Collector,  v.  Childs 

is  imposed  on  the  '  'president  of  each  of  the  express,  tele- 
g-raph,  telephone,  electric  ligfht,  and  g-as  companies 
doing-  business  in  this  state. ' '  He  argues  from  such  lan- 
guage, used  in  the  same  paragraph  which  imposes  a  tax 
on  the  president  of  banks,  that  if  the  legislature  had  in- 
tendeci  to  impose  a  tax  on  presidents  of  national  banks  it 
would  have  used  the  words  "president  of  each  bank  do- 
ing business  in  this  state."  Such  words  are,  of  course, 
more  comprehensive  in  their  nature,  but  are  they  needed 
to  include  presidents  of  national  banks?  If,  as  we 
have  seen,  such  banks  are  to  be  treated  as  citizens  of 
the  state  in  which  they  are  located,  then  there  are  no 
banks  doing  business  in  Georgia  which  can  properly  be 
denominated  foreign  corporations.  While  not  domestic 
corporations,  the  act  which  creates  national  banking 
associations  establishes  for  them  one  situs,  one  domi- 
cile ;  and,  while  they  operate  under  laws  independent 
of  the  state,  it  is  only  for  the  purpose  of  carrying  out 
the  objects  of  their  organization  within  the  state  in 
which  they  are  located.  It  is  a  matter  of  common 
knowledge  that,  in  Georgia,  there  are  railroad,  tele- 
graph, telephone,  express,  and  gas  companies,  doing 
business,  which  are  not  citizens,  but  foreign  corpora- 
tions. The  domicile  of  such  corporations  is  in  another 
state,  and  they  are  here  merely  by  the  comity 
which  exists  between  the  states.  There  mig-ht  be 
some  question  if  the  act  which  sought  to  in- 
clude such  corporations  should  impose  a  tax  on  "the 
presidents  of  the  railroads  of  this  state, "  because,  while 
they  do  business  in  this  state,  they  are  citizens  of 
another  state,  and  carry  on  business  here  simply  by 
permission.  Judge  Cooley,  referring  to  the  con- 
struction of  tax  laws,  says  :  "The  underlying  princi- 
ple of  all  construction  is  that  the  intent  of  the  legisla- 
ture should  be  sought  in  the  words  employed  to  express 
it,  and  that,  when  found,  it  should  be  made  to  govern, 
not  only  in  all  proceedings  which  are  had  under  the 
law,  but  in  all  judicial  controversies  which  bring  those 
proceedings  under  review."  Cooley,  Tax'n  (2d  Ed.)  p. 
264.     We  cannot  doubt  but  that  the  general  assembly, 


310  TAXATION  [vol  I 

Linton,  Tax  Collector,  v,  Childs 

by  the  use  of  the  words  quoted,  intended  to  impose 
a  tax  on  the  presidents  of  national  banks,  as  well  as 
state  banks. 

The  inquiry  then  arises  whether  the  g-eneral  assem- 
bly has  power  to  impose  a  tax  on  the  presidents  of  na- 
tional banks  doinof  business  in  this  state.  "Taxes  are 
the  enforced  proportional  contributions  from  persons 
and  property  levied  by  the  state,  by  virtue  of  its  sover- 
eig"nty,  for  the  support  of  gfovernment  and  for  all  pub- 
lic need.  Cooley,  Tax'n  (2d  Ed.)  p.  1.  And,  further, 
as  to  the  subjects  of  taxation,  the  same  eminent 
authority  declares  :  "Everything-  to  which  the  leg-isla- 
tive  power  extends  may  be  the  subject  of  taxation, 
whether  it  be  person,  or  property,  or  position,  or  fran- 
chise, or  privilegfe,  or  occupation,  or  right."  Id.  p.  5. 
The  tax  in  question  is,  by  the  statute,  imposed  on  the 
presidents  of  each  of  the  banks  of  the  state.  The  sec- 
tion of  the  act  which  imposes  the  tax  laj's  it  also  upon 
"every  practitioner  of  law, medicine  or  dentistry, agfents 
neg-otiating  loans,"  etc.,  from  which  it  is  evident' that 
it  'is  imposed  as  an  occupation  tax.  As  a  rule,  there 
can  be  no  question  of  the  rig-ht  of  the  g-eneral  assembly 
to  impose  a  tax  on  the  occupation  of  persons.  Some- 
times it  is  a  "license  fee,"  and  is  imposed  in  the  exer- 
cise of  the  police  power  of  the  state,  and  used  for  reg-- 
ulating-  certain  businesses  ;  or  it  may  be  imposed  di- 
rectly as  a  tax  to  raise  revenue  for  the  support  of  the 
g-overnment.  McCoy,  J.,  delivering-  the  opinion  of 
this  court  in  the  case  of  Burch  v.  Mayor,  etc.,  42  Ga. 
5%,  says  :  "AVe  can  see  no  reason,  in  the  nature  of 
thing's,  why  a  tax  may  not  be  laid  upon  the  land  and 
upon  the  crop,  on  the  horse  and  on  the  work  of  the 
horse,  on  the  man  and  on  the  income  of  the  man,  un- 
less there  be  some  special  limitation  of  this  power 
by  the  constitution."  Under  our  constitution,  the 
only  qualification  pertaining-  to  the  levy  of  taxes  on 
occupation  is  that,  while  the  taxing-  power  may  not 
tax  all  classes  of  occupations,  3"et,  when  one  class 
is  taxed,  all  in  that  class  must  be  taxed  alike,  in 
order  to  secure  the  uniformity   required  by  the  con- 


B  CAS]  TAXATION  311 

Linton,  Tax  Collector,  v.  Childs 

stitution.  Mayor  v.  Long-,  54  Ga.  330;  Cutliff  v.  Mayor, 
60  Ga.  597.  So  that,  assuminof  it  was  the  purpose  of 
the  g-eneral  assembly  to  include  presidents  of  all  banks 
doing"  business  in  this  state  in  the  imposition  of  the  tax, 
the  question  is,  do  the  laws  of  the  United  States  so 
limit  the  power  of  the  g-eneral  assembly  to  tax  national 
banking-  associations  as  to  exclude  presidents  of  na- 
tional banking-  associations  from  the  operation  of  a 
statute  which  imposes  an  occupation  tax  on  such  offi- 
cers? It  is  not  necessar}^  to  refer  to  the  method  of 
organizing-  national  banking  associations.  Their  crea- 
tion, powers,  and  duties  are  the  subjects  of  United 
States  statutes,  accessible  to  all.  Without  doing-  so, 
it  is  sufficient  to  say  that  such  banks,  when  duly  or- 
ganized, are  "instruments  designed  to  be  used  to  aid 
the  government  in  the  administration  of  an  important 
branch  of  the  public  service.  *  ^  *  Being  such  means, 
brought  into  existence  for  this  purpose,  and  intended 
to  be  so  employed,  the  states  can  exercise  no  control 
over  them,  nor  in  any  wise  affect  their  operation,  ex- 
cept in  so  far  as  congress  may  see  proper  to  permit.'* 
Bank  v.  Bearing,  91  U.  S.  29.  In  a  leading  decision 
of  the  supreme  court  of  the  United  States,  which  has 
never  been  modified,  so  far  as  the  principle  we  are  dis- 
cussing is  concerned,  it  is  said  by  the  court  that  the 
states  have  no  power,  by  taxation  or  otherwise,  to  re- 
tard, impede,  burden,  or  in  any  manner  control  the 
operation  of  a  constitutional  law  enacted  by  congress- 
to  carry  into  execution  the  powers  vested  in  the  general 
government.  McCullough  :■.  Maryland.  4  Wheat.  316. 
See,  also,  Osborne  v.  Bank,  9  Wheat.  738  ;  Bank  Tax 
Case,  2  Wall.  200;  Bradley  f.  People,  4  Wall.  459; 
Tappan  v.  Bank,  19  Wall.  490;  Bank  of  Commerce 
V.  New  York  City,  2  Black,  620.  In  direct  har- 
mony with  this  principle,  of  the  correctness  of 
which  there  can  be  no  doubt,  this  court,  in  the 
case  of  Mayor,  etc.,  of  Macon,  v.  First  Nat.  Bank 
of  Macon,  59  Ga.  648,  ruled  that  :  "While  the  property 
owned  by  the  bank  may  be  taxed  by  state  authority, 
and  the  shares  owned  by  the  stockholders  may  be  also 


312  TAXATION  [vol  I 

Linton,  Tax  Collector,  v.  Childs 

taxed,  the  business  of  the  bank — its  rig-ht  to  operate 
and  do  banking"  business — cannot  be  taxed  by  the  states. 
*  *  "  The  distinction  between  the  rig-ht  to  tax  prop- 
erty and  that  to  tax  business  in  cases  of  ag-encies 
working-  under  federal  authorit}^  is  well  settled,  we 
think,"  etc.  Ag^ain,  in  the  case  of  Johnston  i-.  Mayor,  62 
Ga.  650,  in  discussing*  the  right  of  the  city  of  Macon  to 
tax  the  businesses  of  state  and  national  banks,  this  court, 
in  reference  to  the  latter,  said:  "It  could  not  tax  the 
business  of  the  national  bank,  because  it  was  chartered 
b}''  cong-ress,  and  the  government  of  the  United  States 
used  its  business  for  their  fiscal  operations,  or  could 
use  it,  and  any  interference  by  state  taxation  mig-ht,  if 
allowed  at  all,  amount  to  prohibition,  by  making-  the 
tax  so  hig-h  as  to  be  prohibitory,"  etc. 

Considering-,  then,  the  propositions  that  a  state  can- 
not, by  taxation  or  other  legfislation,  impair  or  destroy 
the  efficiency  of  the  operation  of  any  federal  agenc}^ 
created  by  a  constitutional  act  of  congress  to  further 
and  serve  the  purposes  of  the  government  of  the  United 
States  ;  that  national  banking-  associations  are  one  of 
such  agencies,  whose  business  cannot  be  taxed  by  the 
state, — as  fully  established,  it  may  be  well  to  inquire 
into  the  nature  of  the  tax  imposed.  It  was  urg-ed  by 
the  attorney  g-eneral  that  the  tax  contemplated  by  the 
statute  was  imposed  in  the  exercise  of  the  police  power 
of  the  state ;  that  such  tax  is  a  personal  one  ;  and  that 
the  bank  president  is  not  relieved  because  of  the  fact 
that  the  bank  is  a  federal  ag-ency.  And  he  cites  Bank 
t.  Chipman,  164U.  S.  347,17  Sup.  Ct.  85.  We  are 
of  the  opinion  that  the  imposition  of  this  tax  was  not 
made  in  the  exercise  of  the  police  power,  which,  in  the 
opinion  of  some  authors,  is  founded  on  the  law  of 
necessity,  and  which  is  defined  by  Blackstone  to  be  the 
-due  regulation  and  domestic  order  of  the  kingdom, 
whereby  individuals,  like  members  of  a  well-reg-ulated 
and  well-governed  family,  are  bound  to  conform  their 
•general  behavior  to  the  rules  of  propriet}',  g-ood  neigh- 
borhood, and  g-ood  manners.  4  Bl.  Comm.  162.  It 
extends  to  the  protection  of  lives,  limbs,  health,  com- 


B  CAS]  TAXATION  313 

Linton,  Tax  Collector,  v.  Childs 

fort,  and  quiet  of  all  persons,  and  the  protection  of  all 
property  within  the  state.  Thorpe  t'.  Railroad  Co., 
27  Vt.  149.  While  it  is  true  that  revenue  ma}^  be 
raised  by  an  act  passed  in  the  lejjitimate  exercise  of 
the  police  power,  it  is  our  opinion  that,  in  so  far  as  the 
act  in  question  is  concerned,  it  is  a  pure  revenue  law, 
enacted  to  procure,  in  part,  funds  for  the  support  of 
the  g-overnment,  passed  in  the  leg-itimate  exercise  of 
the  taxing-  power  of  the  state,  and  that  it  applies  in  all 
cases  where  the  particular  subject  is  not,  by  some  con- 
trolling- law,  exempt.  Nor  do  we  think  the  case  cited 
supports  the  contention  of  the  plaintiff  in  error  ;  but 
the  reasoning-  in  that  case  leads,  log-ically,  to  a  conclu- 
sion in  harmony  with  decisions  we  have  previously 
cited.  In  reference  to  national  banking-  associations, 
the  court,  in  the  case  cited,  says  :  "As  long-  since  set- 
tled, in  cases  already  referred  .  to,  the  purpose  and 
object  of  congress  in  enacting-  the  national  bank  law 
was  to  leave  such  banks,  as  to  their  contracts  in  g-eneral, 
under  the  operation  of  the  state  law,  and  thereby  in- 
vest them,  as  federal  agencies,  with  local  strength, 
while  at  the  same  time  preserving-  them  from  undue 
interference,  whenever  cong-ress,  within  the  limits  of 
its  constitutional  authority,  has  expressly  so  directed, 
or  wherever  such  state  interference  frustrates  the  law- 
ful purpose  of  cong-ress,  or  impairs  the  efficiency  of  the 
banks  to  discharge  the  duties  imposed  upon  them  bv 
the  law  of  the  United  States."  By  the  provisions  of 
section  5145  of  the  Revised  Statutes  of  the  United 
States,  the  affairs  of  national  banking-  associations 
must  be  managed  by  directors  chosen  by  the  stockhold- 
ers ;  and  by  section  5150,  Id.,  one  of  the  directors,  to 
be  chosen  by  the  board,  shall  be  president  of  the  board. 
So  far  as  direct  authority  is  concerned,  the  president 
of  a  national  bank,  or,  rather,  of  its  board  of  directors, 
IS  only  authorized,  in  terms,  to  preside  at  the  meeting-s 
of  the  board  of  directors,  and  to  have  charge  of  the 
litig-ation  of  the  bank  ;  otherwise,  his  power,  as  g-iven 
by  the  acts  of  cong-ress.  is  the  same  as  that  of  anv 
other    directors.     See    1    Morse,  Banks,  §^    143,  144'; 


314  TAXATION  [vol  I 

Linton,  Tax  Collector,  v.  Childs 

Gibson  V.  Goldthwaite,  7  Ala.  281.  Under  the  act  of 
conofress,  the  business  of  a  national  bank  is  to  be  man- 
aged, controlled,  and  carried  on  by  the  board  of  di- 
rectors. A  member  of  this  board  is  the  president. 
Without  such  officers,  the  corporation  could  not  carry 
on  business.  In  other  words,  the  directors,  includingf 
the  president,  are  the  instruments  desigfnated  by  the 
act  of  congress  to  carry  on  the  business  of  the  banking 
association,  which  is  itself  one  of  the  instruments  called 
into  being  for  the  purpose  of  performing  a  part  in  the 
business  of  the  government.  No^v,  if  the  business  of 
the  bank  cannot  lawfully  be  taxed,  nor  any  tax  imposed 
by  a  state  which  would  frustrate  the  lawful  purpose 
of  the  act  of  congress,  or  which  would  impair  the  effi- 
cienc}"  of  the  bank  to  discharge  the  duties  imposed 
upon  it  by  law,  then  it  would  seem  to  follow  that  a  tax 
on  the  directors,  or  a  director,  or  the  president,  through 
whom,  alone,  such  business  could  be  carried  on,  would 
be  equally  obnoxious.  If  a  state  could  lawfully  im- 
pose a  license  or  occupation  tax  on  a  director,  or  the 
president,  w^ho  is  a  director,  it  is  a  tax  on  the  instru- 
mentality or  agency  declared  by  congress  to  be  the 
only  power  through  whom  the  business  of  the  bank 
could  be  carried  on.  Without  these  officers  no  national 
bank  could  transact  the  business  for  which  it  was 
organized.  If  the  state  cannot  tax  the  business  of  the 
bank,  because  it  is  a  necessar\^  creation  b}^  the  general 
government  for  its  own  use,  b}"  what  process  of  reason- 
ing can  the  right  be  claimed  to  tax  the  instruments 
which  alone  can  lawfulh^  carry  on  such  business, — not  as 
individuals,  but  as  officers  of  the  bank?  The  tax  here 
is  laid,  not  upon  the  individual  as  an  individual,  but 
upon  him  as  an  officer  of  a  national  bank.  If  such  a 
tax  could  be  lawfully  laid,  it  might  be  laid  to  an  amount 
which  might  deter  some,  if  not  all,  of  such  officers 
within  the  state  from  performing  the  duties  devolving 
upon  them  ;  and  if  they  should  be  prevented  or  deterred 
by  such  tax  from  performing  the  duties  contemplated 
bv  the  act  of  congress,  necessaril3%  the  business  of  the 
bank  would   be    retarded, — nay,   might   be  destroyed. 


B  CAS]  TAXATION  ^  315 

Linton,  Tax  Collector,  v.  Childs 

It  will  be  noted  that  the  tax  imposed  is  not  one  upon 
the  property,  real  or  personal,  of  the  president,  nor 
upon  his  income,  but  clearly  a  tax  upon  his  vocation 
or  calling-.  In  Railroad  Co.  v.  Peniston,  18  Wall.  5, 
the  supreme  court  of  the  United  States  laid  down  the 
general  rule  that:  "The  exemption  of  ag-encies  of  the 
federal  g-overnment  from  taxation  by  the  states  is  de- 
pendent, not  upon  the  nature  of  the  ag"ents,  nor  upon 
the  mode  of  their  constitution,  nor  upon  the  fact  that 
they  are  ag-ents,  but  upon  the  effect  of  the  tax;  that  is, 
upon  the  question  whether  the  tax  does,  in  truth,  de- 
prive them  of  power  to  serve  the  g-overnment  as  they 
are  intended  to  serve  it,  or  hinder  the  eiEcient  exercise 
of  their  power.  A  tax  upon  their  property,  merely, 
having-  no  such  necessary  effect,  and  leaving-  them  free 
to  discharg-e  the  duties  they  have  undertaken  to  per- 
form, may  be  rig-htfully  laid  by  the  states  ;  a  tax  upon 
their  operations,  being-  a  direct  obstruction  to  the  ex- 
ercise of  federal  powers,  may  not  be."  The  ag-ency 
there  in  question  was  a  railroad  company  chartered  by 
act  of  cong-ress,  and  it  was  held  that  the  property 
owned  by  it  was  subject  to  taxation,  but  that  no  tax 
could  lawfully  be  imposed  upon  the  franchises  or 
rig-hts  of  the  compan}^  to  exist  and  perform  the  func- 
tions for  which  it  was  broug-ht  into  being-.  Pag-e  37. 
In  Allen  v.  Carter,  119  Pa.  St.  192,  13  Atl.  70,  it 
appears  that  a  statute  of  Pennsylvania  provided,  "It 
shall  be  a  misdemeanor  for  the  cashier  of  any  bank  of 
this  commonwealth  to  eng^ag-e  in  any  other  profession, 
occupation  or  calling-."  In  construing-  this  statute,  the 
court  held  it  was  not  intended  to  apply  to  national 
banks,  for  the  reason  that,  "the  power  of  cong-ress  to 
create  a  complete  system  for  the  government  of  national 
banks  being-  conceded,  a  disqualification  may  not  be 
imposed  upon  an  officer  of  such  institution  by  an  act  of 
the  state  leg-islature,  where  none  has  been  imposed  by 
the  act  of  cong-ress."  In  the  opinion,  Mr.  Justice 
Paxson  calls  attention  to  the  fact  that,  if  a  state  be  at 
liberty  to  impose  one  qualification  upon  officers  of 
national   banks,    it  may  likewise   impose  others,  until 


316  TAXATION  [vol  I 

People  ex  rcl.  v.  Dederick,  City  Assessor 

the  business  be  most  serio.usly  embarrassed  or  rendered 
entirely  impracticable.  Certainly,  the  efficiency  of 
such  institutions  might  be  impaired  by  such  a  state  law. 
This,  as  we  have  seen,  cannot  be  done.  Our  conclu- 
sion, therefore,  is  that  the  act  of  the  general  assembly 
which  imposes  a  tax  on  the  presidents  of  each  of  the 
banks  of  the  state  is  inoperative  when  sought  to  be  ap- 
plied to  the  presidents  of  national  banks  doing  business 
in  this  state,  because  the  ultimate  effect  of  the  imposi- 
tion of  such  a  tax  tends  to  impair  the  efficiency  of  such 
national  banks  of  which  they  are  presidents  to  discharge 
the  duties  imposed  upon  them  by  the  laws  of  the  United 
States.  Judgment  affirmed.  AH  the  justices  con- 
curring. 

NOTE. 

Taxation  of  National  Banks.— That  a  state  has  no  power  to  tax  a 
national  bank,  or  its  property',  or  the  means  of  performiag-  its 
functions,  so  as  to  impair  or  destroy  its  usefulness  as  an  agency  of 
the  general  g-overnment,  see  McCulloug-h  v.  Maryland,  4  Wheat.'316; 
Osborn  v.  U.  S.  Bank,  9  Wheat.  738  ;  Dobbins  v.  Commissioners  of 
Erie  Co.,  16  Pet.  435. 

But  legislation  which  does  not  impair  the  usefulness  or  capabilitj- 
of  instrumentalities  of  the  general  government  is  not  within  the 
rule  of  prohibition.  National  Bank  v.  Commonwealth,  9  Wall.  353  ; 
Thompson  v.  Pacific  R.  R.,  9  Wall.  579. 


People  cx  rcl.  Heermance  ct  al.  Tax  Com'rs 
Dederick,  City  Assessor. 

(Court  of  Appeals  of  N civ  York,  March  14,  iSgg.) 

Savings  Banks — Deposits^Exemption  from  Taxations^Construc- 
tion  of  Statute.* — Under  the  statute  exempting  "the  deposits  in  any 
bank  for  savings  which  are  due  depositors"  from  taxation,  the  ex- 
emption applies  to  depositors  as  well  as  to  the  bank. 

Appeal    from    supreme    court,    appellate    division. 
Third  department. 

*See  notes  at  end  of  case. 


B  CAS]  TAXATION  317 

People  e.r  rel.  v.  Dederick,  City  Assessor 

Application  for  mandamus  by  the  people,  on  relation 
of  Martin  Heermance  and  others,  constituting-  the  state 
board  of  tax  commissioners,  ag-ainst  Addison  E).  Ded- 
erick, as  assessor  of  the  city  of  King-ston.  From  an 
order  of  the  appellate  division  affirming- an  order  deny- 
ing- the  writ  (54  N.  Y.  Supp,  519),  petitioners  appeal. 
Affirmed. 

J.  Nexvton  Ficro,  for  appellants. 
Geo.   W.   Wickers/mm,  for  respondent. 

Gray,  J.  This  case  presents  the  converse  of  the 
proposition  which  we  had  before  us  in  the  Newburg-h 
Sav.  Bank  Case,  157  N.  Y.  51,  51  N.  E.  412,  where  it 
was  soug-ht  by  the  assessor  of  the  city  of  Newburg-h 
to  assess  the  saving-s  bank  as  to  its  surplus  funds. 
Here  the  endeavor  is,  on  the  part  of  the  taxing-  authori- 
ties, to  assess  the  depositors  in  the  savingfs  banks  of 
the  city  of  King-ston  for  the  amount  of  their  deposits. 
In  the  former  case  referred  to  we  held  that  there 
could  be  no  assessment  under  the  statute,  and  in 
the  course  of  the  opinion  it  was  pointed  out  that  the 
provisions  of  the  banking-  law  made  it  clear  that  every 
interest  in  the  funds  held  by  a  saving's  bank  is  vested 
in  the  depositors  ;  that  the  bank  acquires  no  interest 
therein,  and  is  deemed  to  hold  what  property  it  has  for 
the  benefit  of  depositors  only.  The  lang-uag-e  of  the 
exemption  clause  in  question  (Laws  1896,  c.  908,  §  4, 
subd.  14)  is  to  be  taken  as  referring-  to  the  property 
itself  which  the  bank  is  holding-  and  manag-ing-.  It  is 
"the  depositors  in  any  bank  for  saving-s  which  are 
due  depositors"  which  the  law  exempts  from  taxation, 
and  it  is  quite  immaterial  whether  we  sav  that  the 
property  so  exempted  consists  in  the  indebtedness  of 
the  bank  to  its  depositors,  or  that  it  is  the  fund  itself 
which  is  withdrawn  from  the  operation  of  the  tax  law. 
Clearly,  the  corporation  is  not  subject  to  assessment, 
either  upon  the  principle  that  it  has  no  property  in  its 
deposits,  or  because,  under  the  provisions  of  the  tax 
law,  any  assessment  as  to  its  personal  property  would 
be  offset  by  the  authorized   deduction  of  its  liabilities. 


318  TAXATION  [vol  I 

Citj',  etc.,  of  San  Francisco  v.  Crocker-Woolworth  Nat.  Bank 

which,  as  we  saw  in  the  Newburg-h  Sav.  Bank  Case, 
covered  everything  which  it  held.  Therefore  it  would 
seem  logically  to  follow  that  the  statutory  exemption 
applies,  and  was  intended  to  apply,  to  depositors  in 
savings  banks,  and  to  relieve  them  from  assessment 
for  taxation  as  to  their  deposits.  The  discussion  in 
the  Newburgh  Sav.  Bank  Case  and  the  opinion  in  the 
appellate  division  below  render  it  unnecessary,  in  my 
judgment,  to  discuss  this  question  further.  The  or- 
der should  be  affirmed,  without  costs.  All  concur, 
except  Parker,  C.  J.,  and  Haight,  J.,  who  take  no 
part.     Order  affirmed. 

NOTES. 

Savings  Banks — Deposits — Double  Taxation.  — When  the  money  is 
deposited  the  legal  title  held  b3'  the  trustee,  and  the  equitable  title 
held  by  the  depositor,  are  no  more  than  they  were  before  when  he 
held  them  both  undivided.  The  title  to  the  money  is  divided,  not 
multiplied,  by  depositing  it  in  a  savings  bank.  Robinson  v.  Dover, 
-59  N.  H.  521.  Nor  does  such  division  of  title  subject  the  property  to 
double  taxation.  Berry  :'.  Windham,  59  N.  H.  288,  47  Am.  Rep.  202. 
And  where  deposits  are  taxed  to  the  bank,  the  assessment  of  a  tax 
Tipon  depositors  is  double  taxation  and  unconstitutional.  People  v. 
Badlam  57  Cal.  594,  602;  Nashua  Sav.  Bank  v.  Nashua,  46  N.  H.  389. 

Same — Same — Exemptions — Federal  Statute. — The  provision  of  U. 
S.  Rev.  St.,  ^  3408,  that  savings  banks  "shall  be  exempt  from  tax  on 
so  much  of  their  deposits  as  they  have  invested  in  securities  of  the 
United  States,  and  on  all  deposits  not  exceeding  $2,000  made  in  the 
name  of  any  one  person,"  exempts  from  tax  all  deposits  to  the  ex- 
tent to  which  they  are  invested  in  United  States  securities,  and  also 
to  the  extent  of  32,000.  German  Sav.  Bank.  v.  Archbold,  104  U.  S. 
708,  reversing  15  Blatchf.  C.  Ct.  398. 


City  and  County  of  San  Francisco 

Crocker-Woolworth  Nat.  Bank  of 
San  Francisco. 

[Circuit  Court,  jV.  D.  California  Feb.  25,  i8gg.) 

National  Banks — Personal  Property — State  Taxation. — The  per- 
sonal property  of  national  banks  cannot  be  directly-  assessed  to  them 
by  the  state  for  purposes  of  taxation. 


B  CAS]  TAXATION  319 

City,  etc.,  of  San  Francisco  v.  Crocker-Woolworth  Nat.  Bank 

Demurrer  to  complaint.     Sustained. 

Alfred  FuhrDiau^  for  plaintiff. 
Lloyd  &    Wood,  for  defendant. 

De  Haven,  District  Judg-e.  The  defendant  is  a 
national  banking*  association,  org-anized  and  existing* 
under  and  by  virtue  of  the  laws  of  the  United  States, 
and  having"  its  principal  place  of  business  at  the  city 
and  county  of  San  Francisco,  state  of  California.  The 
action  is  broug"ht  to  recover  the  sum  of  87,754.64-  and 
interest  thereon,  alleg*ed  to  be  due  from  the  defendant 
for  state,  city,  and  county  taxes  on  personal  property, 
consisting*  of  fixtures  and  money  belongfing*  to  and  as- 
sessed to  it  under  the  laws  of  the  state  for  the  purposes 
of  taxation  for  the  year  1896.  The  defendant  has 
demurred  to  the  complaint,  and  the  sing*le  question 
arising*  thereon  is  whether  personal  property  belong*ing* 
to  a  national  bank  is  subject  to  taxation  by  the  state. 

Cong-ress,  in  the  exercise  of  its  undoubted  power, 
has,  in  section  5219,  Rev.  St.  U.  S.,  declared  what 
property  of  national  banks  may  be  thus  taxed.  It  is 
therein  provided  that  real  property  of  national  banks 
shall  be  subject  to  state,  county,  and  municipal  taxes, 
"to  the  same  extent,  according*  to  its  value,  as  other 
real  property  is  taxed,"  and  that  the  shares  in  any 
•such  association  shall  be  assessed  as  other  personal 
property,  to  the  owner  or  holder  of  such  shares.  The 
effect  of  this  statute  is  to  exempt  personal  property 
belonging*  to  national  banks  from  direct  assessment 
and  taxation  by  the  state;  that  is,  the  personal  property 
of  such  banks  cannot  be  directl}'  assessed  to  them 
by  the  state  for  purposes  of  taxation.  .  That  this  is  so 
is  so  well  settled  as  not  to  require  discussion  at  this 
time.  Rosenblatt  v.  Johnston,  104  U.  S.  462;  People 
V.  Weaver,  100  U.  S.  539—543;  Coviug*ton  City  Nat. 
Bank  v.  City  of  Covington,  21  Fed.  484;  People  t . 
National  Bank  of  D.  O."  Mills  &  Co.  (Sup.  Ct.  Cal., 
Dec.  19,  1898)  55  Pac.  685.  The  demurrer  will  be 
sustained,  and  judg-ment  thereupon  entered  in  favor  of 
the  defendant,  the  defendant  to  recover  costs. 


320  TAXATION  [vol,  I 

Stapvlton  :'.  Thajjgard,  Tax  Collector 


Stapylton 
Thaggard,  Tax  Collector. 

(Circuit    Court  oJ\lppeals,  Fifth  Circuit,  Dec.  20,  iSgS.) 

National  Banks — State  Taxation. — A  state  cannot  tax  a  bank  char- 
tered by  cong-ress,  except  as  to  real  propert}'. 

Same — Same — Shareholders. — An  assessment  upon  all  the  personal 
property  of  a  national  bank,  ag"ainst  the  bank  itself,  is  not  an  assess- 
ment upon  the  shares  of  the  bank,  and  ag'ainst  the  shareholders. 

Same — Requiring  Banks  to  Pay  Tax  Against  Shareholders — Insol- 
vency.*— Where  a  bank  is  insolvent  and  has  passed  into  the  hands 
of  a  receiver,  a  tax  assessed  against  the  shares  of  the  bank  cannot 
be  collected  from  the  receiver,  or  from  assets  in  his  hands. 

Appeal,  by  complainants  from  the  Circuit  Court  of 
the  United  States  for  the  Southern  District  of  Florida. 
Reversed. 

The  appellant  (complainant  in  the  court  below)  filed 
his  bill  aofainst  E.  P.  Thag-gfard,  tax  collector  for 
Marion  county,  Fla.,  and  therein  alleg-ed:  That  the 
Merchants'  National  Bank  of  Ocala  be- 
ease  stated.  camc    iusolvent,    and   complainant  was   ap- 

pointed receiver  thereof,  and  entered  upon 
the  dischargfe  of  his  duties.  That  on  January  1,  1896, 
one  Joseph  C.  Matthews,  as  tax  assessor  in  and  for 
Marion  count}',  Fla.,  made  an  assessment  on  said 
Merchants'  National  Bank  of  Ocala  in  the  words  and 
fio-ures  as  follows: 

"(Valuable  or  other  personal  property,  except  ani- 
mals. This  includes  the  value  of  all  household  and 
kitchen  furniture,  books,  watches,  silverware,  moneys 
in  possession  or  at  interest,  or  capital  invested  in  trade, 
including*  notes  and  accounts,    S50,000.00.) 

The  aggregate  value  of  personal  property  thus  ob- 
tained by  adding  columns  10  and  11 550,000  00 

Total  amount  of  state  taxes,  Z}i  mills,  27 Vz  cents  on 
$100.00 '. 187  50 

Total  amount  of  countv  taxes,  12  mills,  or  31.25  on 
$100.00 ! 625  00" 

*See  note  at  end  of  case. 


B  CAS]  TAXATION  321 

Stap3'lton  v.  Thag-gard,  Tax  Collector 

— That  the  assessment  book  containing-  the  said  assess- 
ment was  turned  over  to  the  tax  collector  of  Marion 
county  to  collect  the  same,  and  that  E.  P.  Thag-o-ard 
is  the  collector  now  in  possession  of  said  book,  and 
makes  claim  from  complainant  for  the  said  sums  so 
assessed,  to  wit,  $187.50  and  $625.  That  said  tax  col- 
lector will  levy  upon  and  sell  the  personal  property  of 
said  bank,  being  assets,  in  the  hands  of  complainant, 
to  realize  said  sums  as  taxes.  That  said  assessment 
is  illegal,  and  should  not  be  collected  from  complain- 
ant; that  any  collection  of  said  taxes  out  of  the  per- 
sonal property  of  said  bank  should  be  restrained  and 
declared  illeg-al  and  void.  That  a  levy  and  sale  of 
personal  property  in  the  hands  of  complainant  under 
said  assessment  will  work  a  hardship  upon  the  trusts 
in  complainant's  hands,  and  cause  irreparable  damage 
to  creditors  of  the  bank.  The  bill  prays  that  the  as- 
sessment be  declared  illegal  and  void,  and  defendant 
be  enjoined  from  collecting-  the  same,  and  for  general 
relief.  Two  demurrers  are  filed  to  the  bill  on  the 
grounds  of:  (1)  Want  of  equity.  (2)  It  does  not  appear 
that  complainant  is  entitled  to  the  relief  prayed.  (3)* 
That  it  appears  from  alleg-ations  of  the  bill  that  the- 
assessment  for  taxes  was  lawfully  made,  and  constituted 
a  lien  upon  the  property  assessed  prior  to  the  failure  of 
the  bank.  (4)  That  it  does  not  appear  from  the  alle- 
g-ations of  the  bill  whether  the  assessment  made  for 
the  year  1896  was  based  upon  a  return  made  by  the 
bank  as  said  bank  was  required  to  make  under  the  la^w. 
The  court  sustained  the  demurrers  and  dismissed  the 
bill  on  the  g-round  that  it  appeared  "that  the  assess- 
ment of  taxes  was  properly  made,  and  the  amount  con- 
stitutes a  leg-al  and  valid  lien  upon  the  assets  of  the 
bank,  which  should  be  paid  b}^  the  receiver."  Com- 
plainant appealed,  and  filed  the  following-  specifica- 
tion of  error:  (1)  The  court  erred  in  rendering-  its  fi- 
nal decree  in  this  cause,  wherein  it  sustained  the  de- 
murrer and  dismissed  the  bill  of  complaint.  (2)  That 
the  court  erred  in  holding  the  said  Merchants"  National 

B  CAS— 21 


322  TAXATION  [vol  I 

Stapylton  v.  Thag-gard,  Tax  Collector 

Bank  of  Ocala  liable  for  the  tax  assessed  ao-ainst  it,  as 
set  up  in  the  said  bill  of  complaint. 

F.  P.  FlemhiQ  and  F.  P.  PlcDihfiy;  Jr.,  for  appel- 
lant. 

R.  A.  Bur/ord,    for  appellee. 

Before  Pardee  and  McCormick,  Circuit  Judges, 
and  Parlange.   District  Judo-e. 

Pardee,  Circuit  Judg-e,  after  stating-  the  facts  as 
above,  delivered  the  opinion  of  the    court. 

The  assessment  complained  of  is,  eo  nomine,  upon 
the  bank  assets  and  capital.  It  is  well  settled  that  a 
state  cannot  tax  a  bank  chartered  by  con- 
sutrTilxatiin'*"  gTess,  except  as  to  real  property.  Mc- 
Culloch  r.  Marvland,  4  Wheat.  316;  Osborn 
r.  Bank,  9  Wheat.  738;  Weston  v.  Citv  Council  of 
Charleston,  2  Pet.  449.  Section  5210,  5219,  Rev.  St. 
U.  S.,  are  as  follows: 

"Section  5210.  The  president  and  cashier  of  every 
national  banking-  association  shall  cause  to  be  kept  at 
all  times  a  full  and  correct  list  of  the  names  and  resi- 
dences of  all  the  shareholders  in  the  association,  and 
the  number  of  shares  held  by  each,  in  the  office  where 
its  business  is  transacted.  Such  list  shall  be  subject 
to  the  inspection  of  all  the  shareholders  and  creditors 
of  the  association,  and  the  officers  authorized  to  assess 
taxes  under  state  authority,  during-  business  hours  of 
each  day  in  which  business  may  be  leg^all}'  transacted. 
A  copy  of  such  list,  on  the  first  Monday  of  July  of 
each  year,  verified  by  the  oath  of  such  president  or  cash- 
ier, shall  be  transmitted  to  the  comptroller  of  the  cur- 
rency." 

"Sec.  5219.  Nothing-  herein  shall  prevent  all  the 
shares  in  any  association  from  being-  included  in  the 
valuation  of  the  personal  property  of  the  owner  or 
holder  of  such  shares,  in  assessing-  taxes  imposed  by 
authority  of  the  state  within  which  the  association  is 
located;  but  the  legislature  of  each  state  may  determine 
and  direct  the  manner  and  place  of  taxing- all  the  shares 


B  CAS]  TAXATION  323 

Stapylton  v.  Thag-gard,  Tax  Collector 

of  national  banking-  associations  located  within  the 
state,  subject  only  to  the  two  restrictions,  that  the 
taxation  shall  not  be  at  a  o-reater  rate  than  is  assessed 
vipon  other  moneyed  capital  in  the  hands  of  individual 
citizens  of  such  state,  and  that  the  shares  of  any  national 
banking-  association  owned  by  non-residents  of  any 
state  shall  be  taxed  in  the  city  or  town  where  the  bank 
is  located,  and  not  elsewhere.  Nothing-  herein  shall 
be  construed  to  exempt  the  real  property  of  associations 
from  either  state,  county,  or  municipal  taxes,  to  the 
same  extent,  according-  to  its  value,  as  other  real  prop- 
erty is  taxed." 

The  law  of  Florida  provides  as  to  the  assessment  of 
shares  of  a  national  bank  as  follows: 

"All  shares  of  the  banking-  associations  org-anized 
within  the  state,  pursuant  to  the  provisions  of  the  acts 
of  congfress  to  procure  a  national  currency,  secured  by 
a  pledg-e  of  United  States  stocks,  and  to  provide  for 
the  circulation  and  redemption  thereof,  held  by  any 
person  or  body  corporate,  shall  be  included  in  the 
valuation  of  the  personal  property  of  such  person  or 
body  corporate,  in  the  assessment  of  taxes  in  the  town 
or  city  where  such  banking- association  is  located  and 
not  elsewhere,  whether  the  holder  resides  there  or  not; 
but  not  at  a  g-reater  rate  than  is  assessed  on  other 
moneyed  capital  in  the  hands  of  individuals;  and  for 
the  purpose  of  securing-  the  collection  of  taxes  assessed 
upon  said  shares,  each  banking-  association  shall  pay 
the  same  as  the  agent  of  each  of  its  share-holders  and 
the  said  association  may  retain  so  much  of  any  dividend 
belonging-  to  an}^  share-holder  as  shall  be  necessary  to 
pay  any  taxes  levied  upon  its  shares."  Sess.  Laws 
Fla.  1895,  p.  5,  §  8. 

Under  these  provisions  it  is  difficult  to  construe  the 
assessment  complained  of  in  this  case  as  one  upon  the 
shares    of    the    bank,    and   ag-ainst    the    shareholders. 
Miller  V.  Bank,  46  Ohio  St.  424,  21  N.  E. 
860;  Bank  v.  Fisher,  45  Kan.  726,  26  Pac.     ^C'eMdmT 
482;    National    Bank    v.     Mayor,     etc.,     of 
Mobile,  62  Ala.  284;  and  Sumter  Co.  v.  National  Bank, 


324  TAXATION  [vol,  I 

Note 

Id.  464.  If,  however; this  difficulty  could  be  obviated, 
and  the  assessment  complained  of  taken  and  held  to  be 
one  ag-ainst  the  shareholders  of  the  bank,  the  case  made 
by  the  bill,  showing-  the  insolvency  of  the  bank  and 
the  appointment  of  a  receiver,  is  one  which  releases  the 
receiver  and  any  assets  in  his  hands  from  liability  to 
pay  the  tax.  See  Rosenblatt  :•.  Johnston,  104  U.  S. 
462.  As  we  construe  the  cases,  from  First  Nat.  Bank 
V.  Com.,  9  Wall.  353,  to  First  Nat.  Bank  v.  Chehalis 
Co.,  166  U.  S.  440,  17  Sup.  Ct.  629,  the  bank  is  made 
to  pay  the  taxes  assessed  by  the  state  against  its  share- 
holders, when  the  state  statutes  lay  such  duty  upon 
the  bank,  upon  the  theory  that  the  shares  are  valuable, 
and  that  the  bank  has  assets  in  its  hands  beldng-ing-  to 
the  shareholders  from  which  it  can  recoup.  Where  a 
bank  is  insolvent,  and  has  passed  into  the  hands  of  a 
receiver,  the  shares  are  g"enerally  worse  than  worthless: 
and  the  receiver  has  no  assets  belong-ing-  to 
BantsloXy  m  ^^le  shareholders  which  can  be  applied  to  the 
against  sharehoid-  payment    of  taxes  assessed  on  shares.     In 

ers— Insolvency.  ,  r  •     •  i  i 

such  case,  we  are  oi  opinion  that  the  tax 
assessed  against  the  shares  of  the  bank  cannot  be  col- 
lected from  the  receiver,  or  from  assets  in  his  hands. 
The  case  of  City  of  Boston  r.  Beal,  51  Fed.  306,  is 
directly  in  point;  the  Massachusetts  statute  being-  sub- 
stantially the  same  as  the  statute  of  Florida,  in  provid- 
ing that  the  shares  of  stock  shall  be  assessed  to  the 
owner,  and  the  tax  paid  b}-  the  bank.  The  decree  of 
the  circuit  court  sustaining  the  demurrers  and  dismiss- 
ing- the  complainant's  bill  is  reversed,  and  the  cause 
is  remanded,  with  instructions  to  overrule  the  de- 
murrer, and  thereafter  proceed  in  accordance  with  the 
views  expressed  in  this  opinion,  and  as  equity  may  re- 
quire. 

NOTE. 

Tax  on  Shares — Liability  of  Receiver  of  Insolvent  Corporation. — 
A  tax  on  the  shares  of  stock  of  a  corporation  cannot  be  enforced 
against  the  corporation's  assets  after  it  becomes  insolvent,  nor 
against  a  receiver's  assets.  Lionberger  v.  Rowse,  43  Mo.  67:  Relfe 
V.  Columbia  L.  Ins.  Co..  11  Mo.  App.  374,  Coolev  on  Taxation,  p. 
433. 


B  CAS]  •  TAXATION  325 

First  Nat.  Bank  of  Welling-ton  v.  Chapman,  Treasurer 


First  Nat.  Bank  of  Wellington,  Ohio 

V. 

Chapman,   Treasurer  of  Lorain  County,  Ohio. 

{Supreme  Court  of  the  United  States,  February  2j,  /Sgg.) 

State  Taxation  of  National  Banks — "Moneyed  Capital" — Discrimi- 
nation.— The  term  "moneyed  capital,"  as  used  in  section  5219  of  the 
Revised  Statutes  of  the  United  States,  does  not  include  capital  which 
■does  not  come  in  competition  with  the  business  of  national  banks, 
and  exemptions  from  taxation,  however  large,  such  as  deposits  in 
saving-s  banks  or  of  moneys  belonging-  to  charitable  institutions, 
which  are  exempted  for  reasons  of  puijlic  policy,  and  not  as  an  un- 
friendly discrimination  as  against  investments  in  national  bank 
shares,  cannot  be  regarded  as  forbidden  by  the  federal  statute. 

Same — Discrimination. — Under  the  Ohio  system  of  taxation  there 
is  not  an  unfavorable  discrimination  against  national  bank  share- 
holders, and  in  favor  of  unincorporated  banks  or  bankers,  in  assess- 
ing the  value  of  capital  employed  in  business,  as  in  both  cases  all 
the  debts  of  the  business  itself  are  deducted  from  the  capital  em- 
ployed before  reaching  the  sum  which  is  assessed  for  taxation,  and 
in  neither  case  can  the  debts  of  the  individual,  simply  as  an  indi- 
vidual, be  deducted  from  the  value  of  the  capital  assessed  for  tax- 
ation. 

Case  at  Bar.— The  record  did  not  show  that  there  was  any  unfavor- 
able discrimination  against  the  shareholders  of  national  banks  in 
the  taxation  of  their  shares,  and  in  favor  of  other  moneyed  capital 
in  the  hands  of  individuals  under  the  Ohio  system  of  taxation,  and 
the  fact  of  such  discrimination  does  not  appear  from  the  taxation 
laws  of  the  state. 

Error  by  plaintiff  to  the  Supreme  Court  of  the 
state  of  Ohio. 

This  action  was  broug-ht  t©  restrain  the  collection 
of  taxes,  throug-h  or  by  means  of  the  bank,  by  the  de- 
fendant in  error,  levied  under  a  statute  of  Ohio,  upon 
certain  individual  shareholders  in  the  bank, 
on  the  o-round,  as  alleg^ed,  that  the  assess- 
ment upon  such  specified  shareholders  were  illeg-al,  as 
having-  been  made  without  reg-ard  to  the  debts  of  such 
individual  owners,  contrary  to  the  case  of  other  mon- 
eyed capital  in  the  hands  of  individual  citizens  whose 


326  TAXATION  [vol  I 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

debts  were  permitted  to  be  deducted  from  the  value  of 
such  capital  before  the  assessment  of  taxes  thereon. 

The  petition  contained  alleg-ations  intended  to  show 
a  case  for  the  interposition  of  a  court  of  equit3^  and  a 
tender  was  therein  made  of  the  amount  of  the  taxes 
which  the  plaintiff  admitted  to  be  due  on  such  shares 
after  deducting-  the  debts. 

The  answer,  while  not  taking-  any  objection  that  a 
case  for  equitable  relief  by  injunction  was  not  made, 
provided  the  contention  of  the  petition  as  to  the  assess- 
ments being  illegal  was  well  founded,  claimed, substan- 
tially, that,  by  the  laws  of  the  United  States  and  of 
Ohio,  the  assessments  were  legal,  and  the  petition 
should  therefore  be  dismissed.  Upon  trial  in  the  court 
of  common  pleas  of  Lorain  count\%  the  court  found  the 
following"  facts  : 

"First.  Plaintiff  is  a  national  banking  association, 
incorporated  under  and  by  virtue  of  an  act  of  cong-ress, 
entitled  'An  act  to  provide  for  the  national  currency, 
secured  by  a  pledge  of  the  United  States  bonds,  and  to 
provide  for  the  circulation  and  redemption  thereof,' 
approved  June  3,  1864,  and  the  amendments  thereof, 
and  is  established  and  doing  business  in  the  village  of 
Wellington,  county  of  Lorain,  and  state  of  Ohio. 

"Second.  The  defendant  is  the  duly  elected  and 
qualified  treasurer  of  the  county  of  Lorain  and  state  of 
Ohio. 

"Third.  The  plaintiff  has  a  capital  stock  of  $100,000 
divided  into  1,000  shares,  of  SlOO  each, all  of  which  are 
fulh^  paid  up,  and  certificates  for  the  shares  are  out- 
standing and  owned  by  a  large  number  of  persons. 

"Fourth.  That  in  accordance  with  section  2765  of 
the  Revised  Statutes  of  Ohio,  then  and  now  in  force, 
the  cashier  of  plaintiff  duly  reported  in  duplicate,  to 
the  auditor  of  said  count3\the  resources  and  liabilities  of 
said  banking-  association,  at  the  close  of  business  on  the 
Wednesday  next  preceding  the  second  Monday  of  May, 
1893,  togfether  with  a  full  statement  of  the  names  and 
residences  of  the  shareholders  therein,  with  the  num- 
ber  of  shares  held  by  each,  and  the  par  value  thereof, 


B  CAS]  TAXATION  327 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

as  required  by  said  section  ;  that  included  in  said  return 
so  made  by  said  cashier  was  the  real  estate  owned  by 
the  plaintiff,  valued  at  $3,420,  separately  assessed  and 
charg-ed  on  the  tax  duplicate  of  said  county  ;  that  there- 
upon said  auditor  proceeded,  as  required  by  section  2766 
of  the  Revised  Statutes  of  Ohio,  to  fix  the  total  value 
of  said  shares  according-  to  their  true  value  in  money, 
and  fixed  the  same  at  $74,710,  exclusive  of  the  assessed 
value  of  plaintiff's  real  estate,  and  made  out  and  trans- 
mitted to  the  annual  board  of  equalization  of  incorpo- 
rated banks  a  copy  of  the  report  so  made  by  said  cashier, 
together  with  the  valuation  of  such  shares  as  was 
fixed  by  said  auditor;  that  said  state  board  of  equaliza- 
tion, acting-  under  section  2808  and  2809  of  the  Revised 
Statutes  of  Ohio,  did  examine  the  return  aforesaid,  made 
by  said  cashier  to  said  county  auditor,  and  the  value  of 
such  shares  as  fixed  by  said  count}'  auditor,  and  did 
equalize  said  shares  to  their  true  value  in  money,  and 
fixed  the  valuation  thereof  at  874,710,  exclusive  of  the 
assessed  value  of  plaintiff's  real  estate;  and  the  auditor 
of  said  state  did  certify  said  valuation  to  the  auditor  of 
said  county  of  Lorain,  which  said  auditor  of  said  county 
did  enter  upon  the  tax  duplicate  of  &:aid  county  for  the 
year  1893.  ' 

"Fifth.  That  the  following-  named  stockholders  of 
said  bank  were  on  the  said  day  next  preceding-  the  sec- 
ond Monday  of  April,  1893,  the  owners  of  the  number 
of  shares  of  stock  of  said  bank  set  opposite  their  re- 
spective names,  to  wit  : 

S.  S.  Warner 150  shai-es. 

R.  A.  Horr 10  shares. 

W.  Cushion.  Jr 50  shares. 

C.  W.  Horr 120  shares. 

O.  P.   Chapman 10  shares. 

E.  F.  Webster .     10  shares. 

W.  R.  Wean 20  shares. 

S.  K.  Laundon 120  shares. 

"That  said  shares  were  valued  by  said  state  board 
of  equalization  for  the  year  1893  at  836,607.90,  and 
certified  by  said  board  to  the  auditor  of  Lorain  county 


328  TAXATION  [vol  I 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

as  the  taxable  value  of  the  same;  that  the  rate  of  taxa- 
tion for  all  tax  assessed  and  collected  for  the  year  1893 
within  said  county  and  villa^gfe  was  $0.0255  on  a  dollar's 
valuation,  and  amounted  on  said  value  of  said  shares 
to  S933.50. 

"Sixth.  That  on  said  day  next  preceding-  said 
second  Monday  of  April,  1893,  and  at  the  time  the 
cashier  of  said  banking-  association  made  return  to  the 
auditor  of  said  county  of  the  names  and  residences  of 
the  shareholders  of  said  association,  with  the  numbers 
and  par  value  of  the  shares  of  capital  stock  of  said 
banking-  association  for  the  year  1893,  to  wit,  between 
the  first  and  second  Mondays  of  May  of  said  year,  each 
oi  said  above-named  shareholders  was  indebted  and 
owing-  to  others  of  leg-al  bona  fide  debts  a  sum  in  excess 
of  the  credits,  from  which,  under  the  laws  of  Ohio,  he 
was  entitled  to  deduct  said  debts  to  an  amount  equal  to 
the  value  of  said  shares;  that  proof  of  said  indebtedness 
was  duly  made  to  said  auditor  by  the  shareholders 
aforesaid,  at  the  time  that  the  valuation  of  said  shares 
of  stock  was  so  fixed  by  him;  and  that  said  auditor 
refused  to  allow  the  deduction  of  any  indebtedness  of 
said  shareholders  from  the  value  of  said  shares,  as  so 
fixed  by  said  board  of  equalization;  and  the  auditor  of 
said  count}"  carried  upon  the  duplicate  delivered  to  the 
treasurer,  the  entire  valuation  of  said  shares  so  made 
without  allowing-  any  deductions  therefrom,  by  reason 
of  any  bona  fide  indebtedness  of  said  shareholders  to 
others,  from  the  valuation  so  fixed  by  said  board  of 
equalii^ation. 

"Seventh.  That  the  plaintiff  tendered  to  said  treas- 
urer of  Lorain  county,  on  the  28th  day  of  December, 
1893.  and  offered  to  pay  to  said  treasurer,  the  sum  of 
S485.80,  if  he  would  receive  the  same  in  full  for  the 
tax  assessed  upon  the  valuation  of  the  shares  of  stock 
•owned  by  the  shareholders  named  in  the  petition  for 
the  entire  year  of  1893,  and  said  treasurer  refused  to 
accept  the  same,  and  said  treasurer  intends,  if  not 
enjoined  by  this  court,  to  use  all  lawful  means  for  the 
collection  of  said  tax  so  assessed  upon  the  valuation  of 
said  shares  of  stock." 


B  CAS]  TAXATION  329 

Fiist  Nat.  Bank  of  Welling-ton  :'.  Chapman,  Treasurer 

The  court  also  found,  as  a  conclusion  of  law  from 
the  above  facts,  that  the  injunction  should  be  denied, 
and  the  petition  dismissed.  The  plaintiff  appealed  to 
the  circuit  court  of  Lorain  county,  where,  after  argfu- 
ment,  the  judo-ment  for  defendant  was  reversed,  and 
,  judg-ment  ordered  for  plaintiff  enjoining-  the  collection 
of  the  tax.  The  defendant,  the  treasurer  of  Lorain 
county,  brougfht  the  case  to  the  supreme  court  of  the 
state,  where,  after  hearing-,  the  court  reversed  the 
circuit  court,  and  affirmed  the  judgment  of  the  common 
pleas  dismissing-  the  petition.  Chapman  :•.  Bank,  56 
Ohio  St.  310,  47  N.  K.  54. 

The  state  law  on  the  subject  of  taxation,  so  far  as  it 
may  be  claimed  to  in  any  way  affect  the  question,  is 
contained  in  the  various  sections  of  the  Revised  Stat- 
utes of  Ohio  which  are  set  out  in  the  margin.^ 

W.    W.  Boynilou,  for   plaintiff  in  error. 
F.  S.  Moiuictt  and   S.    IV.    Beinictt,  for  defendant  in 
error. 

Mr.  Justice  Peckham,  after  stating  the  facts, 
delivered  the  opinion  of  the  court. 

Complaint  is  made  in  behalf  of  the  shareholders  of  the 
national  bank  in   question    that   they  are,  by  means   of 

1  Section  2730  g-ives  definitions  of  the  terms  used  in  the  article 
relating-  to  taxation.  This  section  is  not  set  out  in  so  many  words, 
but,  as  therein  used,  the  following-  terms  are  thus  defined  : 

(a)  '"Real  property"  and  "lands"  mean,  not  only  land  itself,  but 
everything  connected  therewith  in  the  way  of  buildings,  structures, 
and  improvements,  and  all  rights  and  privileges  appertaining 
thereto. 

(b)  "Investment  in  bonds"  includes  moneys  in  bonds  or  certifi- 
cates of  indebtedness  of  whatever  kind,  issvied  by  incorporated  or 
unincorporated  companies,  towns,  cities,  villages,  townships,  coun- 
ties, states,  or  other  incorporations,  or  by  the  United  States. 

(c)  "Investment  in  stocks"  includes  all  moneys  invested  in  the 
capital  stock  of  any  association,  corporation,  joint-stock  compauA', 
or  other  company,  where  the  capital  or  stock  is  divided  into  shares, 
transferable  by  each  owner  without  the  consent  of  the  other  share- 
holders, for  the  taxation  of  which  no  special  provision  is  made  by 
law. 

(d)  "Personal  property"  includes  (1)  evei-y  tangible  thing  the 
subject  of  ownership,  whether  animate  or  inanimate,  other  than 
money,  and  not  forming  part  or  an^'  parcel  of  real  property  :  (2) 
the  capital  stock,  undivided  profits,  and  all  other  means  not  form- 


330  TAXATION  [vol  I 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

the  system  of  taxation  adopted  and  enforced  in  the 
state  of  Ohio,  subjected  to  taxation  at  a  greater  rate  than 
is  imposed  upon  other  moneyed  capital  in  the  hands  of 
individual  citizens,  contrary  to  section  5219  of  the 
Revised  Statutes  of  the  United  States. 

The  complaint  is  founded  upon  the  alleg-ation  that 
the  owners  of  what  is  termed  "credits"  in  the  law  of 
Ohio  (Rev.  St.  §  2730)  are  permitted  to  deduct  certain 
kinds  of  their  debts  form  the  total  amount  of  their 
credits,  and  such  owners  are  assessed  upon  the  balance 
only,  while  no  such  rig-ht  is  g-iven  to  owners  of  shares 
in  national  banks.  The  claim  is  that  shares  in 
national  banks  should  be  treated  the  same  as  credits, 
and  their  owners  permitted  to  deduct  their  debts  from 
the  valuation.  The  owners  of  property  other  than 
credits  are  not  permitted  to  deduct  their  debts  from  the 
valuation    of  that  property. 

It  is  also  claimed  that  there  is  an  unfavorable  dis- 
crimination ag-ainst  the  national  bank  shareholder,  and 
in  favor  of  an  unincorporated  bank  or  banker. 

At  the  outset  it  is  plain  that  the  system  of  taxation 

ing  part  of  the  capital  stock  of  a  company,  whether  incorporated  or 
unincorporated,  and  all  interest  in  such  stock,  profits,  or  means, 
including-  shares  in  a  vessel,  as  therein  stated  ;  (3)  money  loaned  on 
pledge  or  mortgage  of  real  estate,  although  a  deed  may  have  been 
given,  provided  the  parties  consider  it  as  security  merely. 

(e)  The  term  "moneys"  includes  surplus  or  undivided  profits  held 
bj'  societies  for  savings  or  banks  having  no  capital  stock,  gold  and 
silver  coin,  bank  notes  of  solvent  banks  in  actual  possession,  and 
every  deposit  which  the  person  owning,  holding  in  trust,  or  having 
the  beneficial  interest  therein,  is  entitled  to  withdraw  in  money  on 
demand. 

(f)  The  term  "credits"  means  the  excess  of  the  sum  of  all  legal 
claims  and  demands,  whether  for  money  or  other  valuable  thing,  or 
for  labor  or  service  due  or  to  become  due  to  the  person  liable 
to  pay  the  tax  thereon,  including  deposits  in  banks,  or  with 
persons  in  or  out  of  the  state,  other  than  such  as  are  held 
to  be  money  as  defined  in  this  section,  when  added  together  (esti- 
mating every  such  claim  or  demand  at  its  true  value  in  money), 
over  and  above  the  sum  of  legal  iwna  fide  debts  owing-  by  such 
person ;  but,  in  making  up  the  sum  of  such  debts  owing,  no 
obligation  can  be  taken  into  account  (1)  to  anj'  mutual  in- 
surance company ;  (2)  for  any  unpaid  subscription  to  the  cap- 
ital stock  of  an3'  joint-stock  company  ;  (3)  for  any  subscription 
for  any  religious,  scientific,  or  charitable  purpose;  (4)  for  any 
indebtedness  acknowledged  ;  unless  founded  upon  some  consideration 
actually  received  and   believed  at  the  time  of  making   the  acknowl- 


B  CAS]  TAXATION  331 

First  Nat.  Bank' of  Wellington  v.  Chapman,  Treasurer 

adopted  in  Ohio  was  not  intended  to  be  unfriendly  to, 
or  to  discriminate  ag-ainst,  the  owners  of  shares  in 
national  banks;  for,  as  observed  by  the  state  supreme 
court,  that  system  was  adopted  long-  prior  to  the  passage 
of  the  law  by  cong-ress  providing-  for  the  incorporation 
of  national  banks.  Under  this  system,  the  owner  of 
shares  in  national  banks  is  taxed  precisely  like  the 
owner  of  shares  in  incorporated  state  banks.  Rev.  St. 
Ohio  §  2762. 

The  main  purpose  of  congress  in  fixing-  limits  to 
state  taxation  on  investments  in  national  banks  was  to 
render  it  impossible  for  the  state,  in  levying-  such  a 
tax,  to  create  and  fix  an  unequal  and  unfriendly  compe- 
tition by  favoring  institutions  or  individuals  carryingf 
on  a  similar  business  and  operations  and  investments 
of  a  like  character.  The  language  of  the  act  of  con- 
gress is  to  be  read  in  the  ligfht  of  this  policy.  "Mon- 
eved  capital,"  does  not  mean  all  capital  the  value  of 
which  is  measured  in  terms  of  money,  neither  does  it 
necessarily  include  all  forms  of  investments  in  which 

edgment  to  be  a  full  consideration  therefor;  (5)  for  any  acknowledg- 
ment made  for  the  purpose  of  diininishing  the  amount  of  credits 
to  be  listed  for  taxation;  (6)  for  any  greater  amount  or  portion  of 
any  liability  as  surety  than  the  person  required  to  make  the  state- 
ment of  such  credits  believes  that  such  surety  is,  in  equity,  bound  to 
pay,  etc. 

Other  sections  read  as  follows  : 

"Sec.  2736.  Each  person  required  to  list  property  shall,  annually, 
upon  receiving  a  blank  for  that  purpose  from  the  assessor,  or  within 
five  days  thereafter,  make  out  and  deliver  to  the  assessor  a  state- 
ment, verified  by  his  oath,  as  required  by  law,  of  all  the  personal 
property',  moneys,  credits,  investments  in  bonds,  stocks,  joint  stock 
coinpanies,  annuities  or  otherwise,  in  his  possession,  or  under  his 
control,  on  the  day  preceding  the  second  Monday  of  April  of  that 
year,  which  he  is  required  by  law  to  list  for  taxation,  either  as  owner 
or  holder  thereof,  or  as  parent,  husband,  guardian,  trustee,  executor, 
administrator,  receiver,  accounting  officer,  partner,  agent,  factor  or 
otherwise  ;  and  also  of  all  moneys,  credits,  investments  in  bonds, 
stocks,  joint-stock  companies  or  otherwise,  held  on  said  day  by 
another,  residing  in  or  out  of  this  state,  for  and  belonging  to  the 
person  so  listing,  or  any  one  residing  in  this  state,  for  whom  he  is 
required  by  law  to  list,  and  not  listed  by  such  holder  thereof,  for 
taxation  in  this  state. 

"Sec.  2737.  Such  statement  shall  ti'uly  and  distinctly  set  forth, 
first,  the  number  of  horses,  and  the  value  thereof  ;  second,  the  num- 
ber of  neat  cattle,  and  the  value  thereof  ;  third,  the  number  of  mules 
and  asses,  and  the  value  thereof  ;   fourth,  the  number  of  sheep,  and 


332  TAXATION  VOL  I 

First  Nat.  Bank  of  Welling-ton  v.  Chapman,  Treasurer 

the  interest  of  the  owner  is  expressed  in  money. 
Shares  of  stock  in  railroad  companies,  mining-  compa- 
nies, manufacturing-  companies,  and  other  corporations 
are  represented  by  certificates  showing-  that  the  owner 
is  entitled  to  an  interest  expressed  in  money  value  in 
the  entire  capital  and  property  of  the  corporation  ;  but 
the  property  of  the  corporation  which  constitutes  this 
invested  capital  may  consist  mainly  of  real  and  per- 
sonal property,  which,  in  the  hands  of  individuals, none 
would  think  of  calling-  moneyed  capital,  and  its  busi- 
ness may  not  consist  in  any  kind  of  dealing-  in  money 
or  com.mercial  representatives  of  money.  This  state- 
ment is  taken  from  Mercantile  Bank  v.  City  of  New 
York,  121  U.  S.  138,  155,  7  Sup.  Ct.  826.  That  case 
has  been  cited  with  approval  man}"  times,  especially  in 
Bank  v,  Avers,  IbO  U.  S.  660,  16  Sup.  Ct.  412,  and  in 
First  Nat. ■'Bank  of  Aberdeen  v.  Chehalis  Co.,  166  U. 
S.  440,  17  Sup.  Ct.  629. 

The    result  seems   to   be    that  the    term    "moneyed 
capital,"  as  used  in  the  federal  statute,  does  not  in- 

the  value  thereof  ;  fifth,  the  number  of  hogs,  and  the  value  thereof  ; 
sixth,  the  number  of  pleasure  carriages  (of  whatever  kind,)  and  the 
value  thereof  ;  seventh,  the  total  value  of  all  articles  of  personal 
property,  not  included  in  the  preceding  or  succeeding  classes  ; 
eighth,  the  number  of  watches,  and  the  value  thereof  ;  uiuth,  the 
number  of  piano  fortes  and  organs,  and  the  value  thereof;  tenth, 
the  average  value  of  the  goods  and  merchandise  which  such  person 
is  required  to  list  as  a  merchant;  eleventh,  the  value  of  the 
property  which  such  person  is  required  to  list  as  a  banker, 
broker,  or  stock  jobber;  twelfth,  the  average  value  of  the 
materials  and  manufactured  articles  which  such  person  is  re- 
quired to  list  as  a  manufacturer  ;  thirteenth,  moneys  on  hand 
or  on  deposit  subject  to  order ;  fourteenth,  the  amount  of 
credits  as  hereinbefore  defined  ;  fifteenth,  the  amount  of  all 
moneys  invested  in  bonds,  stocks,  joint  stock  companies,  annuities 
or  otherwise  ;  sixteenth,  the  monthly  average  amount  or  value,  for 
the  time  he  held  or  controlled  the  same,  within  the  preceding  year 
of  all  moneys,  credits  or  other  effects,  within  that  time  invested  in 
or  converted  into  bonds  or  other  securities  of  the  United  States  or  of 
this  state,  not  taxed,  to  the  extent  he  may  hold  or  control  such  bonds 
or  securities  on  said  day  preceding  the  second  Monday  of  April  ; 
and  any  indebtedness  created  in  the  purchase  of  such  bonds  or 
securities  shall  not  be  deducted  from  the  credits  under  the  fourteenth 
item  of  this  section  ;  but  the  person  making  such  statements  may 
exhibit  to  the  assessor  the  property  covered  by  the  first  nine  items 
of  this  section,  and  allow  the  assessor  to  affix  the  value  thereof,  and 
in  such  case  the  oath  of  the  person  making  the  statement  shall  be  in 


B  CAS]  TAXATION  333 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

elude    capital    which    does    not   come  into  competition 
with    the    business    of   national   banks,  and 
that    exemptions    from     taxation,     however  jJluomUBlirk's- 
larofe,  such  as  deposits  in  saving's  banks  or  li^Jl-scHiJjIJiJfjoil'  * 
of   moneys   belong-inof   to  charitable  institu- 
tions, which  are  exempted  for  reasons  of  public  policy, 
and  not  as  an  unfriendly  discrimination  as  against  in- 
vestments in  national  bank  shares,  cannot  be  regfarded 
as  forbidden  by  the  federal  statute. 

The  case  last  cited  contains  a  full  and  careful  refer- 
ence to  most  of  the  prior  cases  decided  in  this  court 
upon  the  subject,  and  g-ives  the  meaning-  (as  above 
stated)  of  the  term  "moneyed  capital,"  when  used  in 
the  federal  statute. 

With  no  purpose  to  discriminate  ag-ainst  the  holders 
of  shares  in  national  banks,  and  with  the  taxation  of 
the  shareholders  in  the  tv^o  classes  of  banks,  state  and 
national,  precisely  the  same,  the  question  is  whether 
this  system  of  taxation  in  Ohio,  in  its  practical  opera- 
tion, does  materially  discriminate  ag-ainst  the  national 
bank  shareholder  in  the  assessment  upon  his  bank 
shares. 

that  regard  only  that  he  has  fully  exhibited  the  property  covered  by 
said  nine  items." 

"Sec.  2746.  Personal  property  of  every  description,  moneys,  and 
credits,  investments  in  bonds,  stocks,  joint  stock  companies  or 
otherwise,  shall  be  listed  in  the  name  of  the  person  who  was  the 
owner  thereof  on  the  day  preceding  the  second  Monday  of  April,  in 
each  year  ;  but  no  person  shall  be  required  to  list  for  taxation  an\' 
share  or  shares  of  the  capital  stock  of  any  compan3%  the  capital  stock 
of  which  is  taxed  in  the  name  of  such  company." 

"Unincorporated  Banks  and  Bankers. 

"Sec.  2758.  Every  company,  association  or  person,  not  incorpo- 
rated under  any  law  of  this  state  or  of  the  United  States,  for  bank- 
ing purposes,  who  shall  keep  an  office  or  other  place  of  business, 
and  engage  in  the  business  of  lending  money,  receiving  money  on 
deposit,  buying  and  selling  bullion,  bills  of  exchang-e,  notes,  bonds, 
stocks  or  other  evidence  of  indebtedness,  with  a  view  to  profit,  shall 
be  deemed  a  bank,  banker  or  bankers,  within  the  meaning  of  this 
chapter. 

"Sec.  2759.  All  unincorporated  banks  and  bankers  shall  annually, 
between  the  first  and  second  Mondays  of  May,  make  out  and  return 
to  the  auditor  of  the  proper  county,  under  oath  of  the  owner  or 
principal  officer  or  manager  thereof,  a  statement  setting  forth  : 

"First.  The  average  amount  of  notes  and  bills  receivable,  dis- 
counted or  purchased   in  the  course  of  business,  by   such  unincorpo- 


334  TAXATION  [vol  I 

First  Nat.  Bank  of  Welling-ton  7'.  Chapman,  Treasurer 

Under  the  Ohio  law,  the  shares  in  national  and  also 
instate  banks  are  what  is  termed  '"stocks"  or  "invest- 
ments in  stocks,"  and  are  not  credits  from  which  debts 

can  be  deducted.  As  between  the  holders 
nfiMony""'"""'     of  shares   in   incorporated   state   banks  and 

national  banks,  on  the  one  hand,  and  unin- 
corporated banks  or  bankers,  on  the  other,  we  find  no 
evidence  of  discrimination  in  favor  of  unincorporated 
state  banks  or  bankers.  In  reg-ard  to  this  latter  class, 
there  is  no  "capital  stock,"  so  called  ;  and  section  2759 
of  the  Revised  Statutes  therefore  makes  provision,  in 
order  to  determine  the  amount  to  be  assessed  for  taxa- 
tion, for  deducting"  the  debts  existing-  in  the  business 
itself  from  the  amount  of  moneyed  capital  belong^ing"  to 
the  bank  or  banker,  and  employed  in  the  business,  and 
the  remainder  is  entered  on  the  tax  book  in  the  name 
of  the  bank  or  banker,  and  taxes  assessed  thereon. 
This  does  not  g"ive  the  unincorporated  bank  or  banker 
the  rig-ht  to  deduct  his  g-eneral  debts  disconnected  from 
the  business  of  banking",  and  not  incurred  therein, from 
the  remainder  above  mentioned.     It  cannot  be  doubted 

rated  bank,  banker  or  bankers,  and  considered  good  and  collectible. 

"Second.  The  averag-e  amount  of  accounts  receivable. 

"Third.  The  average  amount  of  cash  and  cash  items  in  possession 
or  in  transit. 

"Fourth.  The  average  amount  of  all  kinds  of  stocks,  bonds,  in- 
cluding United  States  government  bonds  or  evidences  of  indebted- 
ness, held  as  an  investment  or  in  any  way  representing  assets. 

"Fifth.  The  amount  of  real  estate  at  its  assessed  value. 

"Sixth.  The  average  amount  of  all  deposits. 

"Seventh.  The  average  amount  of  accounts  payable,  exclusive  of 
current  deposit  accounts. 

"Eighth.  The  average  amount  of  United  States  government  and 
other  securities  that  are  exempt  from  taxation. 

"Ninth.  The  true  value  in  money  of  all  furniture  and  other 
property  not  otherwise  herein  enumerated.  From  the  aggregate 
sum  of  the  first  five  items  above  enumerated  the  said  auditor  shall 
deduct  the  aggregate  sum  of  the  fifth,  sixth,  seventh  and  such 
portions  of  the  eighth  items  as  are  by  law  exempt  from  taxation, 
and  the  remainder  thus  obtained,  added  to  the  amount  of  item  nine, 
shall  be  entered  on  the  duplicate  of  the  county  in  the  name  of  such 
bank,  banker  or  bankers,  and  taxes  thereon  shall  be  assessed  and 
paid  the  same  as  provided  for  other  personal  property  assessed  and 
taxed  in  the  same  city,  ward  or  township. 

"Sec.  2759a.  The  said  bank,  banker  or  bankers  shall,  at  the  same 
time,  make  statement  under  oath  of  the  amount  of  capital  paid  in  or 


B  CAS]  TAXATION  335 

First  Nat.  Bank  of  Welliiiffton  v.  Chapman,  Treasurer 

that,  under  this  section,  those  debts  which  are  discon- 
nected from  the  banking-  business  cannot  be  deducted 
from  the  ag-greo-ate  amount  of  the  capital  employed 
therein.  The  debts  that  are  incurred  in  the  actual 
conduct  of  the  business  are  deducted  so  that  the  real 
value  of  the  capital  that  is  employed  may  be  deter- 
mined, and  the  taxes  assessed  thereon. 
^  This  system  is,  as  nearly  as  may  be,  equivalent  in 
its  results  to  that  employed  in  the  case  of  incorporated 
state  banks  and  of  national  banks.  Under  the  sections 
of  the  Revised  Statutes  which  relate  to  the  taxation  of 
these  latter  classes  of  banks  (section  2762,  et  scq.),  the 
shares  are  to  be  listed  by  the  auditor  at  their  true  value 
in  money,  which  necessarily  demands  the  deduction  of 
the  debts  of  the  bank,  because  the  true  value  ©f  the 
shares  in  money  is  necessarily  reduced  by  an  amount 
corresponding-  to  the  amount  of  such  debts.  In  order 
to  arrive  at  their  true  value  in  money,  the  bank  returns 
to  the  auditor  the  amount  of  its  liabilities  as  well  as  its 
resources.  Thus,  in  both  incorporated  and  unincorpo- 
rated banks  the  same  thing-  is  desired,  and  the  same  re- 
sult of  assessing-  the  value  of  the  capital  employed  in  the 
business,  after  the  deduction  of  the  debts  incurred  in 
its  conduct,  is  arrived  at  in  each  case  as  nearly  as  is  pos- 
sible, considering-  the  difference  in  manner  in  which 
the  moneyed  capital  is  represented  in  unincorporated 
banks  as  compared  with  incorporated  banks,  which 
have  a  capital  stock  divided  into  shares.  That  math- 
employed  in  such  banking-  business,  together  with  the  number  ot 
shares  or  proportional  interest  each  shareholder  or  partner  has  in 
such  association  or  partnership." 

"Incorporated  Banks. 

"Sec.  2762.  All  the  shares  of  the  stockholders  in  any  incorporated 
bank  or  banking  association,  located  in  this  state,  whether  now  or 
hereafter  incorporated  or  organized  under  the  laws  of  this  state  or  of 
the  United  States,  shall  be  listed  at  their  true  value  in  money,  and 
taxed  in  the  city,  ward  or  villag-e  where  such  bank  is  located,  and 
not  elsewhere. 

"Sec.  2763.  The  real  estate  of  any  such  bank  or  banking-  associa- 
tion shall  be  taxed  in  the  place  where  the  same  may  be  located,  the 
same  as  the  real  estate  of  individuals." 

"Sec.  2765.     The  cashier  of  each  incorporated  bank  shall  make  out 


336  TAXATION  [vOIv  I 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

ematical  equality  is  not  arrived  at  in  the  process  is  imma- 
terial. It  cannot  be  reached  in  any  system  of  taxation, 
and  it  is  useless  and  idle  to  attempt  it.  Equality,  so 
far  as  the  diflferent  facts  will  permit,  and  as  near  as 
they  will  permit,  is  all  that  can  be  aimed  at  or  reached. 
That  measure  of  equalit}',  we  think,  is  reached  under 
this  system.  So  far  as  this  point  is  concerned,  it  is 
entirely  plain  there  is  no  discrimination  between  unin- 
corporated banks  and  bankers,  on  the  one  hand,  and 
holders  of  shares  in  national  banks,  on  the  other. 

If  the  value  of  national  bank  shares  is  increased  by 
reason  of  the  franchises  of  the  bank  itself,  as  claimed 
by  the  plaintiff  in  error,  while  no  such  added  value 
obtains  in  the  case  of  unincorporated  banks,  there  is  no 
discrimination  against  bank  shareholders  on  that  ac- 
count. This  is  simply  a  case  where  added  elements 
of  value  exist  in'  the  national  bank  shares  which  are 
absent  in  the  case  of  unincorporated  banks  ;  but  in  both 
cases  all  the  debts  of  the  business  itself  are  deducted 
from  the  capital  employed  before  reaching"  the  sum 
which  is  assessed  for  taxation,  and  in  neither  case  can 
the  debts  of  the  individual,  simply  as  an  individual,  be 
deducted  from  the  value  of  the  capital  assessed  for 
taxation. 

The  court  below  did  not  hold,  as  erroneously  sug- 
gested by  counsel  for  plaintiff  in  error  that,  as  the  state 
and  national  banks  were  placed  on  an  exact  equality 
regarding  taxation,  therefore  there  was  no  discrimina- 

and  return  to  the  auditor  of  the  county  in  which  it  is  located,  be- 
tween the  first  and  the  second  Monday  of  May,  annually,  a  report 
in  duplicate,  under  oath,  exhibiting,  in  detail,  and  under  appro- 
priate heads,  the  resources  and  liabilities  of  such  bank,  at  the  close 
of  business  on  the  Wednesday  next  preceding  said  second  Monda3', 
together  with  a  full  statement  of  the  names  and  residences  of  the 
stockholders  therein,  with  the  number  of  shares  held  by  each,  and 
the  par  value  of  each  share. 

"Sec.  2766.  Upon  receiving  such  report  the  county  auditor  shall 
fix  the  total  value  of  the  shares  of  such  banks  according  to  their 
true  value  in  money,  and  deduct  from  the  aggregate  sum  so  found 
the  value  of  the  real  estate  included  in  the  statement  of  resources  as 
the  same  stands  on  the  duplicate,  and  thereupon  he  shall  make  out 
and  transmit  to  the  annual  state  board  of  equalization  for  incorpo- 
rated banks  a  copy  of  the  report  so  made  by  the  cashier,  together 
with  the  valuation  of  such  shares  as  so  fixed  by  the  auditor." 


B  CAS]  TAXATION  337 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

tion  tnade  against  national  banks,  and  in  favor  of  other 
moneyed  capital  in  the  hands  of  individual  citizens. 
The  state  court  said  upon  this  subject  that,  if  the  state 
and  national  banks  were  treated  equally,  the  latter 
were  not  assessed  at  a  greater  rate  than  the  former  ; 
that  national  bank  shareholders  were  not,  in  such  event, 
illeg-ally  assessed,  unless  there  was  a  clear  discrimina- 
tion in  favor  of  moneyed  capital  other  than  that 
employed  in  either  state  or  national  banks.  This  state- 
ment, we  think,  is  plainh^  correct. 

The  question  recog-nized  by  the  state  court, therefore, 
remains,  whether  there  is  any  such  discrimination. 

The  chief  ""round  for  maintaining-  that  there  is  exists 
in  the  fact  that  the  owner  of  what  is  termed  "credits" 
in  the  statute  is  permitted  to  deduct  certain  classes  of 
debts  from  the  sum  of  those  credits,  upon  the  remainder 
of  which  taxes  are  to  be  assessed,  while  the  national 
bank  shareholder  is  not  permitted  to  deduct  his  debts 
from  the  value  of  his  shares  upon  which  he  is  assessed 
for  taxation. 

It  is  claimed,  in  substance,  that  all  credits  are 
moneyed  capital,  and  that  they  are  large  enoug"h  in 
amount,  when  compared  with  the  moneyed  capital 
invested  in  national  banks,  to  become  an  illeg-al  dis- 
crimination against  the  holders  of  such  shares. 

There  is  no  finding  of  the  trial  court  upon  the 
subject  of  the  total  amount  of  credits  in  the  state. 
Reference  was  made  on  the  argfument  to  the  report  of 
the  auditor  of  the  state  for  1893,  from  which  it  is  said 
to  appear  that  the  total  credits,  after  deducting-  the 
debts  allowed,  were  5106,000,000  or  SI  11,000,000,  the 
amounts  differing"  to  that  extent  as  presented  by  the 
counsel  for  the  different  parties.  The  case  does  not 
show  that  the  trial  court  received  the  report  in  evidence, 
and  nothing  in  any  finding"  has  reference  m  any  way  to 
that  report.  We  do  not  think  it  is  a  document  of 
which  we  can  take  judicial  notice,  or  that  we  could 
refer  to  any  statement  or  alleg"ed  fact  contained  therein, 
unless  such  fact  w^ere  embraced  in  the  finding"  of  facts 

B  CAS— 22 


338  TAXATION  [vol  I 

First  Nat.  Bank  of  Wellington  v.  Chapman,  Treasurer 

«of  the  trial  court,  upon  which  we  must  decide  this 
case. 

However,  if  we  were  to  look  at  this  report,  we  should 
then  see  that  the  total  credits  do  not  show  what 
portion  of  those  credits  consists  of  moneyed  capital  in 
the  hands  of  individuals,  which  in  fact  enters  into 
competition  for  business  with  national  banks.  It  is 
only  that  kind  of  moneyed  capital  which  this  court,  in 
its  decisions  above  cited,  holds  is  moneyed  capital, 
within  the  meaninjjf  of  the  act  of  cong-ress. 

Indeed,  there  is  no  evidence  as  to  what  the  total 
moneyed  capital  in  the  hands  of  individual  citizens,  and 
included  in  the  term  "credits,"  amounts  to,  even  under 
the  widest  definition  of  that  term. 

In  looking'  at  the  statutory  definition  of  the  term 
^'credits,"  we  find  that  so  far  from  its  including- all 
legfal  claims  and  demands  of  every  conceivable  kind, 
'except  investments  in  bonds  of  the  classes  described 
in  section  2730,  and  investments  in  stocks,  it  does  not 
include  any  claim  or  demand  for  deposits  which  the 
person  owning",  holding-  in  trust,  or  having-  the  benefi- 
cial interest  therein  is  entitled  to  withdraw  in  money 
on  demand,  nor  the  surplus  or  undivided  profits  held 
bv  societies  for  saving-s  or  banks  having  no  capital 
stock,  nor  bank  notes  of  solvent  banks  in  actual 
possession;  and,  from  the  credits  as  defined,  their  owner 
cannot  deduct  certain  kinds  of  indebtedness  therein 
mentioned.  It  cannot  be  contended  that  all  credits,  as 
•defined  in  the  statute,  are  moneyed  capital,  within  the 
meaning  of  the  act  of  cong-ress.  The  term  "cred- 
its" includes,  among-  other  things,  as  stated  in  the 
statute,  "all  legal  claims  and  demands  *  -^^  *  for 
labor  or  service  due  or  to  become  due  to  the  person 
liable  to  pay  taxes  thereon."  These  claims  are  not, 
in  anv  sense  of  the  statute,  moneyed  capital.  They 
include  all  claims  for  professional  or  clerical  services, 
as  well  as  for  what  may  be  termed  "manual  labor," 
and  their  total  must  amount  to  a  larg-e  sum.  What 
proportion  that  total  bears  to  the  whole  sum  of  credits 
we  do  not  know,  and  the  record  contains  no  means  of 
ascertaining". 


i 


IB  CAS]  TAXATION  339 

First  Nat.  Bank  of  Welling-ton  v.  Chapman,  Treasurer 

It  is  impossible  to  tell,  from  anything-  appearing-  in 
the  record,  what  proportion  of  the  whole  sum  of 
credits  consists  of  moneyed  capital,  within  the  meaning- 
of  the  federal  act.  We  know  that  claims  for  labor  or 
services  do  not  consist  of  that  kind  of  capital.  We 
also  know  that  there  are  probably  larg-e  amounts  of 
other  forms  of  property  which  mig-ht  enter  into  the 
class  of  credits  as  defined  in  the  act  which  would  not 
be  moneyed  capital,  within  the  meaning-  of  the  act 
of  cong-ress,  as  that  meaning-  has  been  defined  by  this 
court  in  the  cases  above  cited.  It  is  thus  seen  that 
there  are  larg-e  and  unknown  amounts  of  what  are  in 
the  act  termed  "credits"  which  are  not  moneyed 
capital,  and  that  the  total  amount  of  credits  which  are 
moneyed  capital,  within  the  definition  g-iven  by  this 
court  to  that  term,  is  also  unknown.  That  portion  of 
credits  which  is  not  moneyed  capital,  as  so  defined,  does 
not  enter  into  the  question,  because  the  comparison 
must  be  made  with  other  moneyed  capital  in  the  hands 
of  individual  citizens.  We  are  thus  wholly  prevented 
from  ascertaining-  what  proportion  the  moneyed  capital 
of  individual  citizens  included  in  the  term  "credits" 
(and  from  which  some  classes  of  debts  can  be  deducted) 
bears  to  the  amount  invested  in  national  bank  shares. 
We  are  therefore  unable  to  say  whether  there  has  or 
has  not  been  any  material  discrimination  such  as  the 
federal  statute  was  enacted  to  prevent.  We  cannot 
see  upon  these  facts  any  substantial  difference  between 
this  case  and  those  of  Bank  v.  Avers,  160  U.  S.  660,  16 
Sup.  Ct.4]2;  First  Nat.  Bank  of  Aberdeen  r.  Chehalis 
Co..  166  U.S.  440,  17  Sup.  Ct.  629,  and  National 
Bank  of  Commerce  v.  City  of  Seattle,  166  U.  S.  463, 
17  Sup.  Ct.  996. 

As  a  result,  we  find  in  this  record  no  means  of  ascer- 
taining- whether  there  is  any  unfavorable  discrimination 
ag-ainst  the  shareholders  of  national  banks  in  the 
taxation  of  their  shares,  and  in  favor  of 
other  moneyed  capital  in  the  hands  of  indi-  ^''*<'*"""-- 
vidual  citizens.  There  is  nothing-  upon  the  face  of 
these    statutes    which  shows  such  discrimination,   and 


340  TAXATION  [vol  I 

First  Nat.  Bank  of  Wellington  i<.  Chapman,  Treasurer 

therefore  it  would  seem  that  the  plaintiff  in  error  has 
failed  to  make  out  a  case  for  the  intervention  of  the 
court. 

It  is  stated,  however,  that  this  specific  question  has 
been  otherwise  decided  in  Whitbeck  v.  Bank,  127  U.  S. 
193,  8  Sup.  Ct.  1121.  If  this  were  true,  we  should  be 
jjfuided  by  and  follow  that  decision.  Upon  an  exami- 
nation of  the  case,  it  is  seen  that  the  court  g-ave  chief 
attention  to  the  question  whether  an  increase  in  the 
value  of  the  shares  in  national  banks  made  by  the  state 
board  of  equalization,  from  60  per  cent,  of  their  true 
value  in  money,  as  fixed  by  the  auditor  of  Cuyahoo-a 
county,  to  65  per  cent.,  as  fixed  by  the  board  (other 
property  being-  valued  at  only  60  per  cent.),  amounted 
to  such  a  discrimination  in  the  taxation  of  the  share- 
holders of  such  banks  as  is  forbidden  by  the  federal, 
statute.     It  was  held  that  it  did. 

Coming-  to  the  question  of  the  deduction  of  the  bo)ia 
fide  indebtedness  of  shareholders,  the  court  assumed 
that,  under  the  statute  of  Ohio,  owners  of  all  moneyed 
capital  other  than  shares  in  a  national  bank  were  per- 
mitted to  deduct  their  bona  fide  indebtedness  from  the 
value  of  their  moneyed  capital,  but  that  no  provision 
for  a  similar  deduction  was  made  in  regard  to  the  owner 
of  shares  in  a  national  bank  ;  and  it  was  held  that 
the  owners  of  such  shares  were  entitled  to  a  deduction 
of  their  indebtedness  from  the  assessed  value  of  the 
shares  as  in  the  case  of  other  moneyed  capital.  The 
point  to  which  the  court  chiefly  directed  its  attention 
related  to  the  question  whether  a  timely  demand  had 
been  made  for  such  deduction  of  indebtedness.  It  was 
held  that  it  was  made  in  time,  for  the  reason  that  the 
court  below  expressly  found  that  "the  laws  of  Ohio 
make  no  provision  for  the  deduction  of  the  bona  fide 
indebtedness  of  any  shareholder  from  the  shares  of  his 
stock,  aud  provide  no  means  by  which  such  deduction 
could  be  secured."  As  a  demand  at  an  earlier  period 
would  have  been  useless,  the  court  held  it  unnecessary. 

An  examination  of  the  statutes  of  Ohio  in  reg-ard  to 
taxation  shows  that  debts  can   only  be  deducted  from 


II 


B  CAS]  TAXATION  341 

People  V.  National  Bank  of  D.  O.  Mills  &  Co 

credits,  and  how  much  of  credits  is  moneyed  capital  is 
unknown.  The  case  is  not  authority  adverse  to  the 
principle  we  now  hold. 

For  the  reasons  already  stated,  we  think  the  jud"-- 
ment  in  this  case  should  be  affirmed,  and  it  is  so 
ordered. 


Peopi^E 


National  Bank  of  D.  O.  Mills  &  Co. 

[Supreme  Court  of  California,  Dec.  ig,  /8g8.) 

Taxation — Validity  of  Assessment. — An  addition  to  the  list,thoug-h 
furnished  by  the  taxpayer  to  the  assessor  without  the  examination 
authorized  under  section  3632  of  the  Political  Code,  does  not  render 
the  assessment   void,   even  as  to  the  property  thus  added  to  the  list. 

Same — National  Banks — Exemption  of  Personal  Assets. *^National 
hanks  and  their  property  have  been  withdrawn  from  the  domain  of 
state  taxation,  except  so  far  as  congress  has  expressly  consented 
that  they  may  be  taxed,  and,  therefore,  the  personal  assets  of  a  na- 
tional bank  are  exempt  froin  state  taxation. 

Appeal  b}^  plaintiff  from  Sacramento  county  superior 
court.     Affi}-))icii. 

Ally.  Gen.  Fitzgerald,  for  the  People. 
Lloyd  (£'  Wood,  for  respondent. 

Temple,  J.  The  action  was  broug"ht  to  recover  taxes 
assessed  to  respondent,  a  national  banking-  association 
orgfanized  under  the  acts  of  congress.  On  the  first 
Monday   in  March,    1895,  it  had  real  prop-       „     „. .  ^ 

.     -^^^  .  1  t;»se  stilted. 

erty  in  bacramento,  and  also  personal  prop- 
erty, consisting  of  safes  and  fixtures,  and  money  on  hand 
and  money  on  special  deposit.  The  blank  form  for  a 
statement,  with  demand  for  a  list,  was  served  on  it  by 
the  assessor  ;  and  it  was  returned,  with  a  description  of 
certain  real  estate,  and  safes  and  fixtures,  valued  at 
$5,000.     The  assessor    was    dissatisfied  with  this,  and 

*See  notes  at  end  of  case. 


342  TAXATION  [vol  I 

People  V.  National  Bank  of  D.  O.  Mills  &  Co 

returned  it  to  the  president  of  the  bank,  insisting  that 
the  personal  assets  of  the  bank  were  liable  to  taxation. 
After  considerable  conversation  and  discussion,  during 
which  the  amount    of  the  deposits    as  they  were  after- 
wards assessed  was  stated  by  the  president  and  cashier, 
the  list  was  changed  by  erasing  the  item  as  to  the  safes 
and  fixtures,  and  in  that  condition  was  verified  and  re- 
turned  to  the  assessor  by  the  cashier.     The  assessor 
then   proceeded,    without  issuing  any  subp<3ena  to  any 
officer  or  employee  of  the  bank,  or  to  any  other  person, 
to  assess   to  and   against  the  defendant  the  safes  and 
fixtures,    valued  at  S5,000,  and  deposits  to  the  amount 
of  5800,000.     In  due  time   the  defendant  tendered  the 
amount  of  the   tax  upon  the  real  estate,  but  it  declines 
to  pay   the  tax  upon   the  personal  property  ;  claiming 
that  it  is  exempt  under  the  act  of   congress  creating 
national    banks,    as  an   instrumentality   of   the  federal 
government.     All  the  findings,  save  one,  were  agreed 
upon  by  the  parties.     It  is  not  found,  and  does  not  ap- 
pear, that  the  assessor  considered  that  defendant  had, 
after  demand,    refused   to   make  a  statement  as   to  its 
propert3^  or  that  he  made  an  entry  to  that  effect  on  the 
assessment   book,  as  authorized  by  section  3633  of  the 
Political   Code  ;   but  it  does  appear   that  the  board  of 
equalization  refused  to  consider  the  objections  made  by 
the   bank  to  the  assessment  on  the   ground   that  the 
"assessment   had  been  arbitrarily   made,   and  that  the 
board  of  equalization  had  no  power  to  review  the  same." 
It  is  admitted  that  the  bank  did  have  the  property  which 
was  assessed  to  it,    and   also  that,  if  it  is  not  exempt 
from   taxation,    it  ought   to  have   been  given  in  by  the 
bank  and   assessed  to  it.      The  refusal   of  the  board  to 
consider   defendant's  objections   has  not   injured  it,  if 
the  assessment  was  proper  and  would  have  been  main- 
tained.    Judgment    was    for    the    defendant,    and    the 
people  appeal,  from  the  judgment,  and  from  an  order 
denying  a  new  trial. 

It  is  contended  that  the  assessment  was  illegal,  for 
two  reasons: 

1.  After  the  taxpayer  has  returned  to  the  assessor  his 


B  CAS]  TAXATION  343 

People  z'.  National  Bank  of  D.  O.  Mills  &  Co 

verified  list,    althoug-h  the  assessor    knows    of    other 
property  beloag-ing-  to  the  taxpayer;  althoug-h,  in  fact, 
the  taxpayer  has  had  his  attention   called  to 
the  matter,    and  admits  the  possession  and  Taxation-vaiid- 

itV  01  \SS6SS- 

ownership  of    other    property,    as  was  the  mint, 
fact  in  this  case,  —still  the  assessor  cannot 
include  such  property  in  the  assessment  without  first 
issuing-  a  subpcieua  and   holding-  an  examination,   as  he 
is  authorized  to  do  under  section  3632  of  the  Political 
Code.     The  proposition  is  that  an  addition  to  the  list 
furnished  by  the  taxpayer,    without  the  examination^ 
renders  the  assessment  void, — at  least,  as  to  the  prop- 
erty' thus  added  to  the  list.     Unless  the    statute  has 
g-iven  such  effect  to  the  list,  this  position  cannot    be 
maintained.     The  g-eneral  dut}^    of  the  assessor  is  to 
list  all  taxable  property  in  this  county  or  district..     The 
law  compelling-  the  taxpayer  to  furnish  the  list  is  un- 
doubtedly  desig-ned  to  assist  the  assessor  in  the  per- 
formance of  his  duties.     The  assessment  is  not  judicial, 
and  must  necessarily  be  summary.     All  property  should 
be  assessed,  or  the  burden  of  taxation  is  not  imposed 
alike  upon    all.     The    assessor    must    not    knowingly 
permit  any  to  escape.     Must  he,   then,   when    he    not 
only  is  fully  informed  as  to  the  property,  but  the  tax- 
payer admits  and  states  to  him  all  the  facts  in  reg-ard 
to  it,   but  simply  contends  that  it  is  by  law  exempt, 
resort  to  this — in  that  case — useless  proceeding-  before 
he  can  lawfully  assess  such  property?     In  many  states, 
the  law  does  give  the  verified   list  some  effect,  but  I 
think    it    has    generally    been    held    that,     unless    the 
statute  provides  otherwise,    it  does  not    in    any    way 
limit  the  powers  of  the  assessor.     Weltv,  Assessm.  ^  4; 
Cooley,.    Tax'n    357;     1    Desty,    Tax'n.    p.    545.     In 
Massachusetts  it  is  made  conclusive  upon  the  assessor, 
although  it  has  been  held  there  that  the  commissioners, 
who  revise  and  equalize  may  add  other  property.     In 
New  York  the  taxpayer  may  make  an  affidavit  which 
may  have  the  effect  to  reduce  his  assessment,  and  the 
different  states,  as  was  to   have  been  expected,   have 
various  schemes  upon  the  subject.     In  Nevada  a  similar 


344  TAXATION  [vol  I 

People  c'.  National  Bank  of  D.  O.  Mills  &  Co 

law  was  construed,  and  it  was  held  that  the  statement 
was  merely  in  aid  of  the  assessor,  and  had  no  binding- 
effect  upon  him.  State  v.  Kruttschnitt,  4  Nev.  178. 
See,  also,  Railway  Co.  r.  Johnson,  108  111.  1;  Felsen- 
thal  :'.  Johnson,  104  111.  21;  Morris  t-.  Jones,  150  111. 
542,  37  N.  E.  928;  Thompson  v.  Tinkcora,  15  Minn. 
295  (Gil.  226).  The  last-named  case  is  particularl}^ 
interesting-  upon  this  point.  The  statute  there  con- 
sidered was  quite  similar  to  xDurs,  and  it  was  held  that 
the  assessor  was  not  only  at  liberty  to  add  omitted 
property  of  which  he  had  knowledge,  but  was  bound 
by  his  oath  so  to  do;  and  it  was  said  that,  when  the 
statute  "does  not  directly  or  by  implication  make  the 
oath  of  the  party  conclusive,  it  is  merely  a  step  in  the 
proceeding's  to  enable  the  assessor  to  make  a  complete 
return  of  all  the  property  in  his  district."  I  believe 
this  to  be  a  correct  statement  of  the  g-eneral  current  of 
decisions  upon  the  subject. 

The  question,  then,  is,  is  there  anything-  in  our  statute 
which  will  preclude  the  assessor  from  listing-  any 
property  to  the  taxpayer,  except  such  as  he  returns  in 
his  verified  list,  or  shall  admit  on  examination  under 
oath  after  service  of  a  subpcjena  upon  him?  The 
subpoena  cannot  be  issued  until  after  he  has  made  his 
statement,  and  the  statute  does  not  expressly  authorize 
the  assessor  to  add  to  the  list  after  the  issuance  of  the 
subpoena,  and  the  examination  of  the  taxpayer  under 
oath,  even  if  further  property  should  be  discovered 
upon  such  examination.  Under  the  statute,  and  upon 
the  struii  Juris  theory  of  construction,  so  much  insisted 
upon  by  respondent,  the  assessor  has  no  more  power 
to  add  to  the  list  after  the  issuance  of  the  subpoena 
and  after  the  examination  than  he  had  before,  and 
althoug-h  the  existence  of  other  taxable  property  may 
have  been  admitted  by  the  taxpayer.  It  must  be 
observed,  also,  that  this  construction  makes  the  tax- 
payer the  judgfe  of  what  property  is  exempt  from 
taxation,  ^/^o«^  the  assessor.  Counsel  for  respondent 
say  it  must  be  intended  that  upon  the  discovery  of 
other    property  upon    such    examination   the   assessor 


B  CAS]  TAXATION  345 

People  V.  National  Bank  of  D.  O.  Mills  &  Co 

should  list  it.  To  this  I  a^Jfree,  but  I  know  of  no  reason 
why  property  so  discovered  should  be  listed,  and 
property  discovered  through  the  unsworn  admissions 
of  the  taxpayer  should  not  be.  The  provision  as  to 
the  examination  is  but  an  aid  to  the  assessor  to  enable 
him  to  perform  the  duty  enjoined  upon  him,  and  which, 
upon  making-  his  return,  he  is  compelled  to  state  under 
oath  that  he  has  done.  Pol.  Code,  §  3652.  In  respect 
to  this,  reliance  is  placed  upon  Weyse  v.  Crawford,  85 
Cal.  196,  24  Pac.  735,  which, it  is  contended,  holds  that 
the  assessor  cannot  add  to  a  list  returned  by  a  taxpayer, 
unless  he  has  been  so  subpcjenaed  and  examined.  I  do 
not  so  understand  that  opinion.  It  holds  that  the 
assessor  cannot  make  an  assessment  which  shall  not  be 
revisable  by  the  board  of  equalization,  unless  the  tax- 
payer has  refused  to  make  out  his  list  under  oath,  or 
has  refused  to  comply  with  some  other  requirement  of 
the  law.  Properly  understood,  I  have  no  quarrel  with 
that  decision.  Unless  there  has  been  some  dereliction 
on  the  part  of  the  taxpayer,  unless  he  has  failed  to 
render  the  assistance  to  the  assessor  which  the  law 
requires  him  to  render,  he  cannot  be  subjected  to  the 
penalty  of  a  nonrevisable  assessment.  This,  I  think, 
is  all  that  was  decided  upon  this  matter  in  Weyse  :■. 
Crawford.  It  denominates  such  an  assesssment  "an 
arbitrary  assessment."  The  term  is  not  found  in  the 
statute.  As  used  in  the  opinion,  it  evidently  has  refer- 
ence only  to  an  assessment  which  cannot  be  revised  by 
the  board  of  equalization.  This  is  not  a  ruling-  that  the 
assessor  cannot  assess  property  not  found  in  the  verified 
lists  made  by  a  propertv  owner. 

2.  As  a  second  reason  for  claiming-  that  the  assess- 
ment is  illeg-al,  it  is  contended  that  the  personal  assets 
of  the  bank  are  exempt  from  taxation  by  the  terms  of 
the  national  bankino-  act.  It  is  provided  in 
section  5210  of  the  Revised  Statutes  of  the  ii"'"Lr\'!i^;nn' 
United  States  that  nothing  in  that  act  shall  ',i"s"ff '"'''''"""'' 
prevent  all  shares  in  any  association  from 
being-  included  in  the  individual  assessment  of  the 
owner,   in    assessments  made  for  the  purpose  of  state 


346  TAXATION  VOL  I 

People  c>.  National  Bank  of  D.  O.  Mills  &  Co 

taxation,  "but  the  lecrislature  of  each  state  may  deter- 
mine and  direct  the  manner  and  place  of  taxing"  all  the 
shares  of  national  bankintr  associations  located  within 
the  state,  subject  only  to  the  two  restrictions,  that  the 
taxation  shall  not  be  at  a  g-reater  rate  than  is  assessed 
upon  other  moneyed  capital  in  the  hands  of  individual 
citizens  of  such  state,"  etc.  It  was  also  provided  that 
shares  owned  by  nonresidents  should  be  taxed  in  the 
city  or  town  where  the  bank  is  located,  and  not  other- 
wise. The  orig-inal  act  required  a  list  of  shareholders 
to  be  kept  open  at  the  bank  duriuu"  business  hours  for 
the  inspection  of  state  officers,  and  no  other  visitorial 
power  was  allowed.  The  attorney  general  does  not 
deny  that  a  national  bank  is  a  fiscal  agfentof  the  United 
States,  created  by  it  as  a  means  of  exercising-  its 
powers.  Nor  does  he  apparently  question  the  power 
of  congress  to  limit  or  deny  the  right  of  the  state  to 
tax  its  property;  but  he  contends  that,  although  the 
state  cannot  tax  an  agency  of  the  United  States,  it  may 
tax  the  property  of  its  agents, — at  least,  where  there 
is  no  express  inhibition  by  congress, — and  that  taxa- 
tion of  the  personal  property  of  a  bank,  as  other  like 
propert^^  in  the  state  is  taxed,  is  not  prohibited,  either 
expresslv  or  impliedly,  by  the  act  of  congress.  Upon 
all  these  questions  the  decisions  of  the  supreme  court 
of  the  United  States  are  final,  and  accordingly  counsel 
have  most  elaborately  considered  numerous  cases 
decided  by  that  tribunal.  I  think  counsel  really 
disagree,  however,  only  on  one  point,  t7>.  whether 
taxation  of  such  property  is  prohibited  by  the  act  of 
congress.  Appellant  states  his  contention  as  follows: 
"An  important  question  raised  here  is  whether  the 
inherent  right  rests  in  a  state  to  tax  the  property  of  a 
federal  corporation,  unless  prohibited  by  congress,  or 
whether  its  right  to  tax  the  propert\^  of  such  corporation 
is  derived  from  the  federal  government?"  The  re- 
spondent submits  two  propositions:  (1)  Congress- 
has  the  power;  and  (2)  has  limited  the  power  of  the 
state  to  tax  the  property  of  national  banks,  and,  of 
course,     that    it     has    denied  to  the  states  the    right 


B  CAS]  TAXATION  347 

People  V.  National  Bank  of  D.  O.  Mills  &  Co 

to  tax  any  property  of  national  banks,  except  their 
real  estate,  althougfh  permittingf  the  taxation  of  the 
shares  to  the  shareholders.  Since,  therefore,  re- 
spondent bases  its  claim  to  exemption  upon  the  proposi- 
tion that  cong-ress  has  prohibited  the  tax,  it  is  only 
important  as  a  matter  of  arg-umentto  determine  whether 
the  state  may  tax  such  property,  unless  forbidden  by 
congress,  or  whether  it  derives  its  power  to  tax  from 
the  permission  given  by  congress.  It  is  an  important 
consideration  in  reg^ard  to  this  question  that  cong-ress 
has  expressly  provided  for  the  taxation  of  the  shares 
of  the  bank  to  the  shareholders,  and  has  directed  the 
mode  in  which  this  shall  be  done.  It  has  been  repeat- 
edly' declared  b}^  the  supreme  court  of  the  United  States 
that  by  this  provision  congress  has  not  deprived  the 
states  of  a  resource  from  which  it  could  properl}'  derive 
a  revenue.  The  shares  of  stock  ma}^  be  taxed,  and  it  is 
hornbook  law  that  the  stock  represents  the  value  of  all 
the  assets  of  the  bank.  It  has  been  so  expressly 
adjudicated  in  this  state.  People  z-.  Badlam,  57  Cal. 
594;  Waterworks  v.  Schottler,  62  Cal.  69;  City  of 
San  Francisco  v.  Fry,  63  Cal.  470.  It  is  assumed  in 
Van  Allen  v.  Assessors,  3  Wall.  573;  also  in  People  :•. 
Weaver,  100  U.  S.  539,  where  it  is  asserted  that  the 
limitation  was  intended  only  "to  protect  the  bank  from 
anything  beyond  their  general  share  of  the  public 
burdens."  In  many  other  cases  the  proposition  is 
taken  for  g-ranted,  and  it  is,  I  think,  quite  obvious. 
Under  our  decisions,  we  cannot  deny  that  when  the 
capital  stock  is  assessed  the  assets  of  the  corporation 
are  subjected  to  the  tax.  In  the  case  of  national  banks 
the  value  of  the  shares  was  in' part  made  up  of  United 
States  bonds,  in  which  a  portion  of  the  capital  must  be 
invested.  The  bonds  are  not  subject  to  state  taxation, 
yet  no  deduction  is  required  from  the  assessment  for 
the  investment  in  the  bonds.  So  the  real  estate  ma^^ 
be  assessed,  as  well  as  the  stock,  but  the  value  of  the 
shares  is  made  up  in  part  by  the  real  estate.  The 
trouble  is  that  we  do  not  tax  to  the  individual 
shareholders    the    stock;    but,    on   the    other   hand,  we 


3  4-8  TAXATION  [vOIv  I 

Notes 

assess  to  the  corporation  all  its  assets,  which,  we  have 
held,  o-ives  the  value  to  the  stock.  Under  our  methods 
of  classification,  made  for  the  purpose  of  equalizing- 
the  burdens  of  taxation,  it  has  been  held  that  we 
cannot  assess  the  shares  of  stock  in  a  national  bank  as 
other  money  capital  is  assessed.  But.  conceding-  that 
cong-ress  could  direct  the  extent  and  mode  of  taxing- 
the  property  of  the  bank,  if  the  mode  provided  would, 
if  pursued,  subject  the  property  of  the  bank  to  taxation 
to  the  same  extent  that  other  like  property  is  taxed, 
the  conclusion  is  irresistible  that  it  was  intended  that 
the  tax  expressly  permitted  should  be  the  only  tax  to 
which  the  property  is  to  be  subjected.  But  it  seems 
to  me  that  the  precise  question  was  determined  in 
Rosenblatt  r.  Johnston,  104  U.  S.  462.  A  state 
attempted  to  tax  the  personal  assets  of  an  insolvent 
national  bank.  It  was  quite  naturally  thoug-ht  that  it 
had  then  ceased  to  be  a  g-overnmental  instrumentality. 
In  a  short  opinion  by  the  chief  justice  it  was  held  that, 
as  the  assets  still  belong-ed  to  the  corporation,  they 
were  exempt,  under  section  5234  of  the  Revised  Stat- 
utes of  the  United  States.  In  Coving-ton  City  Nat. 
Bank  v.  City  of  Coving-ton,  21  Fed.  489,  Mr.  Justice 
Matthews  refers  to  the  case.  After  asserting-  the 
power  of  cong-ress  in  the  premises,  he  says:  "It  has 
in  fact  withdrawn  them  and  their  property  from  the 
domain  of  state  taxation,  except  so  far  as  it  has 
expressly  consented  that  they  may  be  taxed.  That 
•consent,  so  far  as  it  has  been  g-iven,  is  contained 
in  section  5219  of  the  Revised  Statutes.  It  does  not 
permit  taxation  of  any  property  belong-ing-  to  the 
iDank,  except  only  its  real  estate,  as  clearly  appears 
from  Rosenblatt  r.  Johnston,  104  U.  S.  462."  General 
and  special  deposits  are  assessable  to  the  depositors. 
Yuba  Co.  t'.  Adams,  7  Cal.  35.  The  judgment  and 
order  are  affirmed. 

We  concur:     McFarland,  J.;  Henshaw,  J. 


National  Banks— Taxation  of  Personal  Assets.— The  National  Bank 

Act,  while  authorizing- the  taxation  of  national  bank  shares,  does  not 


B  CAS]  STOCK  AND  STOCKHOLDERS  349 

Zang'  z'.  Wyant 

permit  taxation  of  any  property  belong-ing-  to  the  bank  except  its 
real  estate.  Coving-ton  Citv  Nat.  Bank  r.  Covington.  21  Fed.  Rep. 
484. 

And  no  revenue  can  be  collected  by  a  state,  county,  or  municipal- 
ity from  national  banks,  except  by  assessments  upon  their  shares 
and  real  estate.  See  National  Commercial  Bank  ?'.  Mayor,  etc., 
of  Mobile,  62  Ala.  284,  34  Am.  Rep.  15,  2  Nat.  Bank  Cas.  440. 

An  assessment  on  personal  property,  apparently  based  on  the  cap- 
ital stock,  is  illegal.     National  State  Bank  r'.  Young,  25  Iowa  311. 

Nor  can  a  tax  on  shares  of  national  banks  be  authorized  by  a  state 
statute  where  the  laws  of  the  state  merely  provide  for  the  taxation  of 
the  capital  stock  of  its  own  banks,  and  not  of  the  shares  held  therein . 
Hubbard  v.  Johnson  Co.,  23  Iowa  130.  As  to  a  new  statute  with  valid 
provisions  for  taxing  national  banks,  see  Morseman  z'.  Younkin,  27 
Iowa  350,  352. 

In  Texas,  under  the  Revised  Statutes  of  1879,  the  real  estate  of 
national  banks  could  not  be  taxed.  Rosenberg-  v.  Weekes,  67  Tex. 
578,  18  Am.  &  Eng.  Corp.  Cas.  140.  In  IMaryland,  a  tax  not  only  on 
the  shares  of  a  national  bank  but  also  on  the  banking-  house,  lot  and 
furniture  is  illeg-al.  Frederick  Co.  v.  Farmers',  etc.,  Nat.  Bank,  48 
Md.  117-119,  ct  seq. 

Same — Same — Insolvents. — The  personal  property-  of  an  insolvent 
national  bank,  in  the  hands  of  a  receiver,  under  the  provision  of 
National  Bank  act,  is,  however,  exempt  from  taxation  under  state 
laws.  Rosenblatt  v.  Johnson,  104  U.  S.  462,  3  Nat.  Bank  Cas.  32. 
See  also  as  to  levy  subsequently  to  insolvency  of  bank.  Woodward  v. 
Ellsworth,  4  Colo.  580,  2  Nat.  Bank  Cas.  216  ;  and  further  as  to  tax- 
ation of  insolvent  national  bank,  Jackson  v.  United  States,  20  Ct.  of 
CI.  298. 


Zang  et  al. 


Wyant  ct  al. 

[Supreme  Court  of  Colorado,  Dec.  rg,  /8gS.) 

Appeal — Review. — The  constitutionality  of  a  statute  cannot  be 
questioned  for  the  first  time  on  appeal. 

Stockholders'  Statutory  Liability  —Enforcement  —  Parties.* — The 
additional  liability  of  stockholders  imposed  by  the  statute  of 
Colorado,  providing  that  the  shareholders  in  banks,  etc.,  shall  be 
held  individually  responsible  for  debts,  contracts  and  engagements 
of  such  associations,  in  double  the  amount  of  the  par  value  of  the 
stock  owned  by  them  respectively,  constitutes  a  fund  for  the  benefit 
of  all  the  creditors,  which  maj'  be  pursued  in  equit}'  for  the  common 
benefit,  by  or  for  all  ;  and  an  assignee,  whose  trust   relates  only  to 

*See  notes  at  end  of  case. 


350  STOCK  AND  STOCKHOLDERS  [vOL  I 

Zaiig"  V.  Wyant 

the  corporate  assets,  acquires  no  right  to  enforce  such  statutory 
oblig'ation. 

Same— Same — Right  of  Action.* — Where  an  insolvent  corporation 
has  made  an  assignment,  its  creditors  are  not  required  to  wait  the 
collection  of  doubtful  claims  before  enforcing  the  stockholders" 
liability  under  such  statute. 

Same — Construction  of  Statute.* — Such  statute  renders  stock- 
liolders  in  banking  associations  individually  liable  for  the  debts  of 
the  association  in  double  the  amount  of  the  par  value  of  the  stock 
owned  by  them,  notwithstanding  they  may  have  paid,  or  are  still 
liable  to  the  corporation  for,  their  original  subscription. 

Same — Interest. — Under  such  statute,  interest  allowable  against 
the  bank  constitutes  a  part  of  its  indebtedness,  for  which  the  stock- 
holders are  made  liable,  if  within  the  maximum  liability  as  fixed  by 
the  statute. 

Evidence.* — The  relation  of  defendants,  as  stockholders  of  the 
bank,  was  sufficiently  shown  by  entries  in  the  "stockbook,"  and  by 
the  testimonj'  of  a  witness  to  the  effect  that  such  book  represented 
the  stockholders,  and  was  the  only  book  kept  for  the  purpose  ;  that 
it  was  kept  in  the  ordinary  course  of  business,  while  he  was  con- 
nected with  the  bank;  that  he  made  some  ot  the  entries  himself; 
and  that  the  persons  named  therein  took  part  in  the  meetings  of 
stockholders  during  the  period  of  time  their  names  appeared  on 
the  book. 

Evidence. t — The  claims  sued  upon  consisted  of  money  deposited 
with  the  bank,  time  and  demand  certificates  of  deposit,  and  drafts 
that  had  been  issued  by  the  bank,  and  protested  for  non-payment  ; 
and  the  "daily  balance  book"  and  the  "draft  book,"  identified  by  a 
witness  who  had  been  the  bank's  cashier  during  the  period  in  ques- 
tion, were  admitted  to  prove  such  claims.  Held,  that  the  books 
were  admissible  for  such  purpose  in  an  action  against  the  stock- 
,  holders,  section  4817,  Mills'  Ann.  St.,  enabling  a  party  to  use  his 
own  books  as  evidence  in  his  own  behalf,  not  being  applicable. 

Deposits — Evidence. — Pass  books  were  issued  by  the  bank  to  each 
of  its  depositors,  in  which  the  amount  of  their  deposits  were  entered 
bj-  the  receiving  teller  at  the  time  they  were  made.  A  deposit  slip, 
showing  the  amount  of  his  deposit,  was  made  out  by  the  depositor  ; 
and  the  deposit  slips  were  preserved  by  the  bank,  and  from  them  the 
entries  in  the  balance  book  were  made.  Held,  that  the  entries  in 
pass  books  furnished  no  better  evidence  of  the  amounts  deposited 
than  the  entries  in  the  balance  book. 

Certificates  of  Deposit— Ownership.*— Certificates  of  deposit  are 
negotiable;  and  where  a  recovery  is  sought  thereon,  present  owner- 
ship must  be  proved;  and  they  must  be  produced  or  their  destruction 
or  loss  be  established;  and  the  necessity  of  such  proof  is  not 
obviated  by  the  introduction  in  evidence  of  a  list  of  verified  claims 
presented  to  the  assignee  of  the  bank,  and  allowed  by  the  court. 

On  Rehearing. 

Parties. — In  an  action  to  enforce  the  stockholders'  liabilitj-  under 
such  statute,  the  complaint  may  sufficiently  state  a  cause  of  action 

*See  notes  at  end  of  case. 

fSee  generally  9  Am.  &  Eng.  Enc.  Law  (2nd  Ed.)  at  p.  903. 


B  CAS]  STOCK  AND  STOCKHOLDERS  351 

Zang  V.  WN-ant 

althoug-h  neither  the  bank  nor  its  assignee  is  made  a  party 
defendant. 

Same. — In  such  an  action,  the  stockholders,  whether  sued  alone, 
or  in  connection  with  the  bank  and  its  assignee,  can  interpose  any 
defense  to  the  claim  of  the  creditors  which  the  bank  could  in  an 
action  against  it. 

Evidence — Review. — Evidence  offered  for  the  first  time  on  appeal 
will  not  be  considered. 

Appeal  by  defendants  from  Arapahoe  county  dis- 
trict court.     Modified. 

This  is  an  equitable  action  broug-ht  by  appellees,  as 
creditors  of  the  North  Denver  Bank,  in  behalf  of  them- 
selves and  such  other  creditors  as  ma}-  join  them , 
aofainst  appellants,  as  stockholders  in  said        ,,     „,  ^  ^ 

^  r  1  i*i-i'j  («se  Stated. 

bank,  to  enforce  the  statutory  liability, 
uader  the  following-  statute:  "Section  1.  Share- 
holders in  banks,  saving's  banks,  trust,  deposit,  and 
security  associations,  shall  be  held  individually  respon- 
sible for  debts,  contracts  and  eng-ag-ements  of  said  as- 
sociations, in  double  the  amount  of  the  par  value  of 
the  stock  owned  by  them  respectivelv."  Sess.  Laws 
1885,  p.  264;  Mills'  Ann.  St.  S  533."  The  bank  was 
duly  incorporated  under  the  laws  of  the  state  of  Colo- 
rado Aug-ust  15,  1889,  and  did  a  g-eneral  banking  busi 
ness  until  July  18,  1893,  when  it  made  a  voluntary- 
assig-nment  of  all  its  assets  to  one  Amos  H.  Root,  who 
thereupon  gave  bonds,  and  duly  qualified,  and  was 
acting  as  such  assignee  at  the  time  of  the  institution 
of  this  suit.  The  case  was  tried  to  the  court,  and 
judgment  rendered  against  appellants  for  double  the 
amount  of  the  par  value  of  the  stock  owned  by  each, 
respectively.  From  these  judgments  appellants  prose- 
cute this  appeal. 

Midler  &  Weil  ^Lucius  Weinscheiik,  B  arte  Is  <&  Blood, 
S.  S.  Sherman,  T.  E.  Walters,  and  James  H.  Brozvn, 
for  appellants. 

Pliilo  B.  Tolles  and  TlioDias  D.  Cobbcy,  for  appel- 
lees. 

Goddard,  J.  (after  stating-  the  facts).  The  specifica- 
tions of   error  are  voluminous,  and,  in  addition   to  the 


352  STOCK  AND  STOCKHOLDERS  [vOL  I 

Zang'  z'.  Wyant 

questions  they  raise  as  to  the  admissibility  and  suffi- 
ciency of  certain  testimony,  challeng-e  the  right  of 
appellees  to  maintain  the  action,  and  also  the  construc- 
tion that  the  court  below  o-ave  to  the  statute  under 
which  the  recovery  is  soug-ht.  In  their  printed  argfu- 
ment,  for  the  first  time,  counsel  question  the  validity  of 
the  act  itself,  upon  the  gfround  that  it  was  never  con- 
stitutionally passed.  Under  former  decisions  of  this 
,   „  .         court  and  the  court  of  appeals,  this  question 

Appeal     Review.         .  i        i       r  r  •  jT         j.- 

IS  not  properly  before  us  tor  consideration. 
Marean  :■.  Stanley,  21  Colo.  43,  39  Pac.  1086;  Rice  :-. 
Carmichael,  4  Colo.  App.  84,  34  Pac.  1010. 

Counsel  for  appellants  insist  that  the  assignee  was 
alone  entitled  to  maintain  the  action,  and  that  the  credit- 
ors themselves  cannot  invoke  the  interposition  of  a  court 
of  equity  to  enforce  the  liability  of  stockholders, 
under  this  statute.  Upon  whom  the  rig^ht  to  en- 
force the  remedy  devolves,  and  the  mode  of  pro- 
cedure that  should  be  adopted,  have  been  in  con- 
troversy in  many  of  the  courts  of  last  resort,  and 
have  been  variously  decided  ;  some  holding-  that  the 
liability  is  primary,  and  enforceable  in  an  action 
at  law  by  an  individual  creditor  against  one  or 
more  of  the  stockholders,  while  in  others,  and  by  far 
the  g-reater  number,  it  is  held  that  the  fund  created  by 
the  statute  is  in  the  nature  of  a  security  for  the  com- 
mon benefit  of  all  the  creditors,  and  that  a  suit  in  equity 
affords  the  most  effectual  and  convenient  remedy  for 
its  enforcement  ;  that  since  the  fund  is  exclusively  for 
the  benefit  of  the  creditors,  and  forms  no  part  of  the 
assets  of  the  corporation,  the  right  of  action  accrues  to 
the  creditors  themselves,  and,  in  the  absence  of  a 
statute  conferring-  the  right,  neither  the  assigfnee  nor 
the  receiver  of  an  insolvent  corporation  can  maintain 
the  action.  Terrv  r.  Little,  101  U.  S.  216;  Pollard  r 
Bailev,  20  Wall.  \520  :  Hornor  r.  Henning-,  93  U.  S 
228  ;  Parns worth  z:  Wood,  91  N.  Y.  308;  Pfohl  r 
Simpson,  74  N.  Y.  137;  Mathez  r.  Neidig-,  72  N.  Y 
100  ;  Griffith  v.  Mangam,  73  N.  Y.  611  ;  Wincock  f 
Turpin,  96  111.  133;  Butcher  :■.  Bank,  12  Blatchf.  435, 


B  CAS]  STOCK  AND  STOCKHOLDERS  353 

Zang  V.  Wyant 

Fed.  Cas.  No.  4,203  ;  Jacobson  v.  Allen,  20  Blatchf. 
525,  12  Fed.  454  ;  Minneapolis  Paper  Co.  v.  Swinburne 
Printing  Co.,  66  Minn.  378,  69  N.  W.  144  ;  Umstead  v. 
Buskirk,  17  Ohio  St.  113  ;  Wrig-lit  v.  McCormack,  Id. 
86  ;  Crease  v.  Babcock,  10  Mete.  (Mass.)  525  ;  Associa- 
tion t'.  Watkins,  70  Mo.  13  ;  Runner  v.  Dwig-g-ins  (Ind. 
Sup.)  46  N.  E.  580  ;  Cook;  Stocks,  &  S.  ?^  280  ;  Thomo. 
Corp.  §  3560  ;    Mor.    Priv.  Corp.  §  869.     In    Terry  v. 
Little,   supra,  Chief  Justice  Waite,  in  discussing- 
the  procedure  that  should  be  adopted  for  the  enforce- 
ment of  a  liability  provided  in  the  charter  of  the  Mer- 
chants'   Bank  of  South  Carolina,  in  languag-e  substan- 
tially   the    same    as    that    used     in    our   statute,  said: 
"Undoubtedly,    the    object  was    to  furnish  additional 
security  to  creditors,   and  to  have  the  payments,  when 
made,  apply  to  the  liquidation  of  debts.     So,  too,  it  is 
clear  that  the  oblig^ation  is  one  that  may  be  enforced  by 
the    creditors  ;   but,  as    it  is  to  or  for  all    creditors,    it 
must  be  enforced  by  or  for  all.    The  form  of  the  action, 
therefore,  should   be  one  adapted   to  the  protection  of 
all."     In    Pfohl   7'.    Simpson,    supra,    it  is  said:      "A 
suit  in  equity,  laying-   hold  of  all   the  stockholders   in 
like    categfory,    and    promoted    for  the   benefit  of  all 
creditors  having-  like   interest,    is    peculiarly   adapted 
to  work  out  exactly  just  and  equable  results.     *     *     * 
The   object  and  effect   is  only   to  bring-   to  one  forum 
the  determination  of  rig-hts,  which  must,  if  prosecuted 
separately,  more  or  less  conflict  to  mutual  harm.     Be- 
fore that  one   forum,  in  one   suit,  the  respective  rig-hts 
and  the  respective  liabilities  can  be  ascertained  and  de- 
termined, and   each   g-et   his  own,   and  be  subjected  to 
his  own,  and  not  another's.     And  the  equities  between 
the    respective   stockholders   can  also   be  adjusted  and 
settled."     In  the   recent  case  of  Runner  t-.  Dwig-gfins, 
the  question  as  to  the  right  of  the  assig-nee  of  an  insol- 
vent corporation  to   maintain  the   action  was  involved  ; 
and    upon   the  authority  of  a  large   number  of  the  ad- 
judged cases,   and    the   rule  as  g^enerally  laid  down  in 
the    text-books,    his   rig-ht  to  maintain   the  action  was 
denied.     Jordan,  C.  J.,  speaking-  for  the  court,  said  : 

B  CAS— 23 


354  STOCK  AND  STOCKHOLDERS  [vOL  I 

Zang  V.  Wyant 

^'Certainly,  it  cannot  be  asserted  with  any  reasonable 
support  that  this  peculiar  liability  imposed  by  the  stat- 
utes upon  those  who  become  shareholders  of  a  bankingf 
association  org-anized  under  the  existing-  law  is  in  any 
sense  an  asset,  rig-ht,  or  interest  of  the  bank,  which  it, 
as  an  insolvent  debtor,  can,  by  its  deed  of  assio-nment, 
pass  to  its  assig"nee,  or  in  any  manner  vest  the  •enforce- 
ment thereof  in  him.  In  the  absence  of  some  statutory 
provision  conferring  the  rig-ht,  neither  the  corporation, 
nor  its  assig-nee  nor  receiver,  can  enforce  such  a  liabil- 
ity as  that  in  question."  We  have  carefully  examined 
the  cases  cited  and  relied  upon  by  counsel  for  appel- 
lants as  sustaining-  their  contention.  It  is  true  that 
these  cases,  while  holding- that  the  fund  can  be  reached 
only  by  a  proceeding  in  equity,  sustain  the  rig-ht  of  the 
receiver  to  enforce  the  remedy.  We  are,  however, 
satisfied  that  the  foregoing  cases  announce  the  gener- 
ally accepted  rule,  and  that,  both  upon  reason  and  au- 
thority, the  additional  liability  of  stockhold- 
ntrry'LinbiMty-^"  ^^'^  imposcd  by  our  Statute  constitutes  a 
Enforce ineut^       {^^^    for   the   benefit  of  all   the   creditors, 

Parties.  .  .  .  „  . 

which  may  be  pursued  in  equity,  for  their 
common  benefit,  by  or  for  all  ;  and  an  assig-nee,  whose 
trust  relates  only  to  the  corporate  assets,  acquires  no 
right  to  enforce  this  statutory  obligation. 

The  rig-ht  to  maintain  the  present  action  is  also  chal- 
lenged because  it  is  prematurely  broug-ht.  It  is  arg-ued 
that  if,  as  we  have  seen,  the  fund  provided  by  the  stat- 
ute is  in  the  nature  of  an  additional  security 
ll^hufAdlon.  fo^"  "tfie  creditors,  the  liability  of  the  stock- 
holders is  secondar3%  and  not  enforceable 
until  the  assets  of  the  corporation  have  been  exhausted. 
It  is  undoubtedly  true  that  this  fund  does  not  consti- 
tute the  primary  or  regular  fund  for  the  payment  of 
the  corporate  liabilities,  and  that  the  corporate  funds 
are  the  primary  resource  to  which  creditors  must  look 
for  the  payment  of  their  debts  and  the  discharg-e  of  the 
corporate  oblig-ations.  But  a  well-  recognized  exception 
to  this  rule  exists  when,  by  reason  of  dissolution  or  in- 
solvency,   an  action   ag-ainst  the  corporation  would  be 


B  CAS]  STOCK  AND  STOCKHOLDERS  355 

Zang  V.  Wj'ant 

unavailing".  1  Cook,  Stock,  Stockh.  &  Corp.  Law,  $ 
200 ;  Terry  v.  Tubman,  92  U.  S.  158  ;  Hodg-es  v.  Min- 
ing- Co.,  9  Or.  200.  We  think  the  facts  averred  in  the 
complaint  and  disclosed  by  the  evidence  bring-  this  case 
within  this  exception.  It  appears  that  the  North  Den- 
ver Bank  on  July  18,  1893,  was  insolvent,  and  made  an 
assig-nment  of  all  its  assets  ;  that  the  appellees  filed 
their  claims  with  the  assignee,  and  the  same  were  al- 
lowed, and  there  has  been  paid  onl}^  20  per  cent,  of 
the  orig-inal  amounts.  No  further  sum  having-  been 
realized  during-  the  length  of  time  that  has  elapsed,  it 
is  evident  that  the  remaining-  assets,  if  any,  consist  of 
worthless  or  doubtful  claims.  Under  these  circum- 
stances, the  creditors  ought  not  to  be  compelled  to  await 
their  collection,  or  delay  the  enforcement  of  the  stat- 
utory liability  against  the  stockholders  ;  but  justice 
requires  that  the  stockholders  themselves  should  be 
compelled  to  pay  their  claims,  and  look  to  the  assig-nee 
for  whatever  may  be  realized  from  the  remaining- assets. 
Moses  V.  Bank,  1  Lea,  398  ;  Starke  v.  Burke,  9  La. 
Ann.  34L  As  was  said  in  the  former  case  :  "They 
[creditors]  will  not  be  required  to  wait  the  collection  of 
doubtful  claims,  or  claims  in  litigation.  The  stock- 
holders must  pay  promptly,  and  take  upon  themselves 
the  onus  of  delay  and  risk  as  to  all  such  claims."  For 
these  reasons,  we  think  the  foreg-oing-  objections  to  the 
maintenance  of  this  action  by  appellees  were  properly 
overruled. 

It  is  further  intended  that  the  court  below  erred  in 
its  conclusion  as  to  the  extent  of  the  liability  imposed 
by  the  statute,  and  in  rendering-  judg-ment  against  each 
of  the  stockholders  in  double  the  amount  of  the  par  value 
of  the  stock  owned  by  them,  respectivelv.  The  lan- 
g-uage  of  the  statute  is  :  "Shareholders  in  banks  ^"'  '^  ^ 
shall  be  held  individually  responsible  for  debts  ^^  *  "' 
of  said  associations,  in  double  the  amount  of  the  par 
value  of  the  stock  owned  by  them  respectively."  It  is 
said  that  the  true  intent  and  meaning-  of  this  language 
is  to  make  the  stockholders  responsible  to  the  amount 
of  stock  subscribed,  and  in  addition  thereto  a  sum  equal 


356  STOCK  AND  STOCKHOLDERS  [VOL  I 

Zang-  V.  Wyant 

to  its  par  value,  or,  as  expressed  by  counsel,  "He  is 
first  liable  to  the  corporation  to  the  full  par  value  of 
his  stock,  and  next  liable  to  the  creditors  in  an  equal 
amount,"  and  that  this  constitutes  the  double  liability 
contemplated  by  the  statute  ;  that  the  judg-ment  of  the 
court  below,  in  effect,  imposed  upon  them  a. triple  lia- 
bilitv.  As  supporting-  this  view,  counsel  cite  Beach, 
Priv.  Corp.  ^  162 ;  Thomp.  Liab.  Stockh.  §  37  ;  1 
Cook,  Stock,  Stockh.  &  t^orp.  Law,  §  215  ;  2  Mor. 
Priv.  Corp.  §  881.  For  instance,  as  said  "by  Mr.  Beach, 
"Statutes  imposing  a  liability  'to  double  the  amount  of 
stock  held  by  them'  receive  the  same  construction  as 
those  making-  the  shareholders  liable  'to  the  amount  of 
their  stock.'  "  And  like  expressions  are  found  in  the 
other  works  referred  to.  As  supporting-  this  conclu- 
sion, they  cite  Perry  :•.  Turner,  55  Mo,  418  ;  Matthews 
V.  Albert,  24  Md.  527  ;  Norris  v.  Johnson,  34  Md.  485  ; 
Booth  V.  Campbell,  37  Md.  522;  Schricker  v.  Ridings, 
65  Mo.  208  ;  Gay  v.  Keys,  30  111.  413.  In  addition  to 
these,  Mr.  Beach  also  cites  Appeal  of  Parrish  (Pa.  Sup.) 
19  Atl.  569.  Upon  a  careful  examination  of  these  cases, 
we  are  unable  to  find  any  warrant  for  the  rule  as  an- 
nounced. In  Matthews  v.  Albert  and  in  Norris  v. 
Johnson  the  statute  under  consideration  provided  that 
the  stockholders  were  severally  and  individually  liable 
to  the  creditors  of  the  company  to  an  amount  equal  to 
the  amount  of  the  stock  held  by  them,  respectively,  etc.  ; 
and  it  was  held  that  the  liability  to  creditors  was  meas- 
ured by  the  par  value  of  the  stock,  without  reference 
to  the  amount  they  may  have  paid  on  the  stock.  To 
the  same  effect  isGaj'  v.  Keys,  supra.  In  Schricker 
V.  Ridings  the  only  question  considered  was  whether  a 
stockholder  could  be  made  liable  to  a  creditor  when  the 
full  amount  of  stock  owned  by  him  had  been  paid,  un- 
der section  6,  art.  8,  of  the  constitution  of  Missouri,  as 
amended  in  1870,  which  enacted  that  "in  no  case  shall 
any  stockholder  be  individually  liable  in  any  amount 
over  and  above  the  amount  of  the  stock  owned  b}'  him 
or  her"  ;  and  the  court  held  that  he  could  not,  by  reason 
of  the  negative  form  of  expression  employed,  but  said  : 


II 


B  CAS]  STOCK  AND  STOCKHOLDERS  357 

Zang  V.  Wyant 

*'If  the  amendment  of  1870  had  declared  in  express 
terms  that  every  stockholder  should  be  individually 
liable  to  the  amount  of  the  stock  owned  by  him,  it  might 
well  be  argued, on  the  authority  of  the  cases  cited  by  the 
plaintiffs'  counsel,  that  as  they  were  already  liable  to 
the  creditors  of  the  corporation  for  the  full  amount  of 
their  stock,  paid  and  unpaid,  the  constitution  intended 
to  provide  further  security  for  such  creditors,  by  super- 
adding the  individual  liability  of  stockholders  in  a  sum 
equal  to  the  amount  of  their  respective  shares  of  stock." 
We  find  no  expression  in  any  of  these  decisions  that  in- 
timates that  statutes  imposing  a  liability  "to  double  the 
amount  of  stock  held"  should  be  given  the  same  sig- 
nification and  receive  the  same  construction  as  those 
making  shareholders  liable  "to  the  amount  of  their 
stock,"  except  in  Perry  z'.  Turner,  where  the  court 
refers  to  section  6,  art.  8,  of  the  constitution  of  Mis- 
souri of  1865,  which  provided  that  stockholders  should 
be  individually  liable,  over  and  above  the  stock  owned 
by  them,  in  a  further  sum  at  least  equal  in  amount  to 
such  stock,  as  creating  a  double  liability  ;  while  in  the 
Appeal  of  Parrish  (a  case  that  involved  the  construc- 
tion of  a  statute  which,  like  ours,  imposed  a  liability 
upon  stockholders  "to  the  extent  of  double  the  amount 
of  their  stock")  the  court  clearly  shows  that  this  lan- 
guage is  not  to  be  construed  to  mean  the  same  as  that 
which  limits  the  liability  of  stockholders  "to  an  amount 
equal  to  the  stock  held,"  but  that  the  latter  phrase  im- 
poses a  single,  while  the  former  imposes  a  double, 
liability.  It  has  been  almost  uniformly  held  that  when 
a  statute  fixes  the  liability  of  stockholders  "in  an  amount 
equal  to  the  stock  held  by  them,  "  or  "to  the  amount  of 
their  stock,"  it  imposes  a  liability  to  the  amount  of  the 
par  value  of  their  shares,  in  addition  to  their  subscription 
to  the  stock.  McDonnell  v.  Insurance  Co.,  85  Ala. 
401,  5  South.  120;  Briggs  r.  Penniman,  8  Cow.  387  ; 
Pettibone  r.  McGraw,  6  Mich.  441  ;  Root  r.  Sinnock, 
120  111.  350,  11  N.  K.  339  ;  Lane's  Appeal,  105  Pa.  St. 
49  ;  Buenz  v.  Cook,  15  Colo.  38,  24  Pac.  679.  It  there- 
fore logically  follows   that  where  the  language  is,  "in 


358  STOCK  AND  STOCKHOLDERS  [vOL  I 

Zang-  V.  Wyant 

double  the  amount  of  stock  held,"  an  oblig^ation  in 
double  the  amount  of  such  par  value  is  imposed.  Appeal 
of  Parrish,  supra  ;  Terry  v.  Little,  supra.  In  the 
latter  case  the  charter  under  consideration  provided 
that  stockholders  should  be  "liable  and  held  bound 
*  *  ""  for  any  sum  not  exceeding-  twice  the  amount 
of  "  '■'•'  *  their  '"  ""  "  shares."  After  quot- 
ing- this  lang-uag-e.  Chief  Justice  Waite  said: 
"This,  as  we  think,  means  that,  on  the  failure  of  the 
bank,  each  stockholder  shall  pay  such  sum,  not  exceed- 
ing- twice  the  amount  of  his  shares,  as  shall  be  his  just 
proportion  of  any  fund  that  may  be  required  to  dis- 
charg-e  the  outstanding  obligations."  Althoug-h  the 
double-liability  clause,  as  found  in  our  statute,  is,  and 
for  several  years  has  been,  in  force,  either  by  virtue  of 
constitutional,  statutory,  or  charter  provisions,  in  the 
states  of  Illinois,  Minnesota,  and  Pennsylvania,  we  are 
aware  of  no  case  wherein  it  has  been  expressly  passed  on 
and  construed,  except  in  the  Appeal  of  Parrish.  There 
are,  however,  cases  which  reached  the  courts  of  final 
resort  in  these  jurisdictions  where  the  amount  recover- 
able thereunder  was  necessarily  involved  ;  and,  while 
the  meaning  of  this  clause  was  in  no  way  raised  or 
discussed,  from  an  examination  of  the  cases  it  will  be 
seen  that  a  liability  in  double  the  amount  of  the  stock, 
in  addition  to  the  subscription,  was  enforced.  Mc- 
Carty  v.  Lavasche,  89  111.  270  ;  Mungfer  v.  Jacobson, 
99  111.  349;  Harper  v.  Carroll  (Minn.)  69  N.  W.  610  : 
Allen  c'.  Walsh,  25  Minn.  543.  As  we  have  seen, 
statutes  of  this  character  are  intended  to  furnish  a 
fund  exclusively  for  the  benefit  of  creditors  ;  and, 
under  the  rule  laid  down  in  all  the  cases,  they  are  to 
be  construed  as  imposing-  an  individual  liability  upon 
stockholders,  in  addition  to  their  liability  to  the  corpo- 
ration for  the  amount  of  their  subscription 
or'stHTutr'"'''*"  to  the  stock.  Accepting  this  as  the  correct 
rule  of  construction,  the  plain  and  obvious 
import  of  the  languag-e  of  our  act  is  to  make  stock- 
holders in  banking-  associations  individually  liable  for 
the  debts  of  the  association  in  double  the  amountof  the 


B  CAS]  STOCK  AND  STOCKHOIvDERS  359 

Zang-  V.  Wyant 

par  value  of  the  stock  owned  by  them,  notwithstand- 
ing- they  may  have  paid,  or  are  still  liable  to  the  corpo- 
ration for,  their  orig-inal  subscription. 

But  it  is  said  that  the  judg-ment  is  excessive  for  the 
further  reason  that  appellees  were  allowed  interest 
upon  their  claims.  We  do  not  think  this  sj„,e-intm«t. 
claim  is  well  founded.  The  stockholders 
are  responsible  for  the  debts,  contracts,  and  eng-ag-e- 
ments  of  the  bank  ;  and  if,  from  the  nature  of  the  con- 
tract or  debt,  interest  was  allowable  ag-ainst  the  bank, 
it  would  constitute  a  part  of  its  indebtedness,  for 
which  the  stockholders  are  made  liable,  if  within  the 
maximum  liabilitv  as  fixed  bv  the  statute.  Richmond 
V.  Irons,  121  U."  S.  27,  7  Sup.  Ct.  788  ;  Wheeler  v. 
Millar,  90  N.  Y.  353. 

It  is  also  urg-ed  that  the  relation  of  appellants,  as 
stockholders  of  the  bank,  was  not  shown  by  compe- 
tent and  sufficient  evidence.  Mr.  Root  produced  and. 
identified  what  was  known  as  the  "stock  fy^^^„(^ 
book"  of  the  bank.  He  testified  that  the 
book  represented  the  stockholders  in  the  bank,  and 
was  the  only  one  kept  for  that  purpose.  Section  508 
Mills'  Ann.  St.,  provides:  "It  shall  be  the  duty  of 
the  directors  or  trustees  of  every  such  corporation 
*  *  "  to  cause  a  book  to  be  kept  by  the  secretary  or 
clerk  thereof,  containing-  the  names  of  all  persons,  al- 
phabetically arrang-ed,  who  are  or  shall  within  one 
year  have  been  stockholders  of  such  corporation,  and 
showing  *  *  *  the  number  of  shares  of  stock  held  by 
them  respectively,  and  the  time  when  they  respec- 
tively became  the  owners  of  such  shares,  and  the  time 
when  they  ceased  to  be  such  stockholders.  ""  "^  *  Such 
books  shall  be  presumptive  evidence  of  the  facts  there- 
in stated  in  an}^  suit  or  proceeding-s  ag-ainst  such  cor- 
poration, or  ag-ainst  any  one  or  more  stockholders.'* 
This  book  conforms  to  these  requirements.  The  wit- 
ness also  testified  that  it  was  kept  in  the  ordinary 
course  of  business,  while  he  was  connected  with  the 
bank,  and  that  he  made  some  of  the  entries  himself, 
and  that  the  persons  named  took  part  in  the  meetings' 


360  STOCK  AND  STOCKHOLDERS  [vOL  I 

Zang  v.  Wyant 

of  stockholders  during-  the  period  of  time  their  names 
appeared  on  the  book.  We  think  the  book,  tog-ether 
with  this  testimony,  was  sufficient. 

A    further    ground    urged  for    reversal    is    that  the 
findings  of  the  trial  court  are  not  supported  by  proper 
and  competent  evidence.     The  claims  sued  upon  con- 
^^  sist  of  money  deposited  with  the  bank,  time 

and  demand  certifica!tes  of  deposit,  and 
drafts  that  had  been  issued  by  the  bank,  and  protested 
for  non-payment.  To  prove  these  claims,  appellees 
called  as  a  witness  Mr.  Root,  who  was  cashier  of  the 
bank  during  the  time  the  deposits  were  received,  and 
the  certificates  and  drafts  issued,  and  who  had  acted 
as  assignee  of  the  bank  since  it  ceased  doing  business. 
He  produced  and  identified  what  is  called  the"daily-bal- 
ance  book,"  which  showed  the  accounts  of  depositors, 
and  the  "time-certificate  register,"  and  the  "demand- 
certificate  book,"  which  showed  what  certificates  of 
deposit  had  been  issued  by  the  bank,  and  also  the 
"draft  book,"  which  showed  the  checks  or  drafts 
drawn  by  the  bank  on  the  bank  which  kept  its  bal- 
ances in  the  East.  Objection  was  made  by  appellants  to 
the  introduction  of  these  books  in  evidence  on  the 
g-round — First,  that  they  were  not  properW  authenti- 
cated ;  and,  second,  because  they  did  not  constitute  the 
best  evidence,  and  were  not  admissible  against  the  de- 
fendants. We  think  these  objections  are  untenable. 
The  witness  testified  that  he  was  familiar  with  the 
books  of  the  bank  ;  that  these  books  were  used  by  the 
bank  in  conducting  its  business  ;  that  the  bank  did 
not  keep  an  individual  ledger,  and  the  daily- balance 
book  was  the  only  one  that  showed  the  state  of  the 
depositors'  accounts,  and  the  entries  therein  were 
made  by  the  employees  of  the  bank,  under  his  super- 
vision, as  cashier,  and  that  of  the  other  officers  ;  that 
the  books  had  been  in  his  possession  since  the  assign- 
ment. It  is  insisted  that  this  showing  is  not  sufficient, 
under  our  statute  (section  4817  Mills'  Ann.  St.),  to 
render  the  books  admissible.  The  object  of  that  sec- 
tion is  to  enable  a  party  to  use    his    own    books  as  evi- 


B  CAS]  STOCK  AND  STOCKHOLDERS  361 

Zang-  V.  Wyant 

dence  in  his  own  behalf,  aad  it  is  not  applicable  where 
the  books  are  introduced  to  show  admissions  ag-ainst 
the  interest  of  the  party  making-  them.  In  order  to 
render  the  books  of  a  party  admissible  for  the  latter 
purpose,  it  is  onh'  necessary  that  they  be  shown  to  be 
his  books,  kept  in  the  regfular  course  of  his  business, 
and  that  entries  therein  were  made  by  himself,  or  an 
ao^entauthorized  to  make  them.  In  McHosei'.  Wheeler, 
45  Pa.  St.  32,  it  was  held  that:  "A  ledg-er,  found, 
after  the  company  had  failed,  with  other  papers  of  the 
company,  in  the  office  of  a  director,  and  he  had  left  the 
state,  and  which  that  director  had  produced  in  other 
proceeding's  as  the  ledger  of  the  compan}',  is  sufficiently 
proved  for  admission  in  evidence  as  such  ;  and  entries 
therein,  showing-  the  nature  and  amount  of  the  indebt- 
edness of  the  company  to  the  plaintiffs,  are  competent 
evidence,  upon  their  part,  of  the  fact."  We  think  the 
showing-  was  sufficient  to  admit  the  books  in  evidence. 
But  it  is  said  that  the  pass  books  of  plaintiffs  were 
better  evidence  of  the  amounts  due  than  this  balance 
book,  and  oug-ht  to  have  been  produced.  These  pass 
books  were  small  books  issued  by  the  bank 
to  each  of  its  depositors,  in  which  the  E!""'^"" 
amount  of  their  deposits,  were  entered  by 
the  receiving-  teller  at  the  time  they  were  made.  A 
deposit  slip  was  made  out  by  the  depositor,  showing- 
the  amount  of  his  deposit,  and  presented  with  the  pass 
book.  These  slips  w^ere  preserved  by  the  bank,  and 
from  them  the  entries  in  the  dail}'- balance  l>ook  were 
made.  The  entries  in  both  therefore  correspond,  and 
those  in  the  pass  books  furnish  no  better  evidence  of 
the  amounts  deposited  than  the  entries  in  the  balance 
book.  Besides,  this  book  showed  what  its  name  indi- 
cates,— the  balance  remaining  to  the  credit  of  a  deposi- 
tor after  the  checks  which  were  drawn  against  it  had 
been  deducted.  Nor  can  we  ag-ree  with  counsel  that 
this  evidence  was  not  admissible  ag-ainst  appellants. 
As  we  have  seen,  entries  made  in  the  due  course  of 
business,  by  those  authorized  to  make  them,  are  ad- 
missible ag-ainst  the  corporation  itself  ;  and  since  the' 


362  STOCK  AND  STOCKHOLDERS  [vOL  I 

Zang  ?'.  Wyant 

corporation  is  a  mere  legal  entity  org-anized  for 
the  benefit  of  its  stockholders,  and  acting  in  all 
its  dealing's  for  them,  and  on  their  account,  it  fol- 
lows that  it  is  equally  admissible  against  them.  As 
was  said  in  Schalucky  v.  Field,  124  111.  617,  16  N.  E. 
904  :  "It  is  true  that  the  entries  in  the  pass  book  are 
made  by  an  officer  of  the  bank,  and  not  by  the  stock- 
holder. But  such  officer,  in  making  the  written  en- 
tries, acts  as  the  agent  and  representative  not  only  of 
the  corporate  entity  known  as  the  'bank,'  but  of  the 
stockholders  regarded  as  unincorporated  partners. 
The  written  evidence  of  indebtedness  is  as  binding" 
upon  the  latter  as  upon  the  former." 

We  think,  therefore,    the    books  were  properly  ad- 
mitted in  evidence,  and   were  competent  to  show  the 
amount  of  the  deposits  for   which  the  bank  was  liable, 
that  certain  certificates  of  deposit  and  drafts 
OfrtiNcatPs or       were  issued  by  the  bank  at  the  time  for  the 

Bcpnsit— Owner-  1,1  ,  •  j  1  •  i 

ship.  amounts  and  to  the   parties  therein  named, 

and  that  such  certificates  were  still  out- 
standing. But  this  itself  is  not  sufficient  to  entitle  the 
parties  to  whom  these  evidences  of  indebtedness  were 
so  issued  to  recover  thereon  in  this  case.  The  certifi- 
cates of  deposit  are  negotiable  instruments,  and  trans- 
ferable b}'  indorsement  and  delivery.  It  was  there- 
fore incumbent  upon  those  who  sought  to  recover 
thereon  to  prove  their  present  ownership,  and  produce 
them  upon  the  trial,  or  show  by  competent  testimony 
that  they  have  been  lost  or  destroyed  ;  otherwise,  a 
recovery  might  be  had  by  the  original  payee,  after  he 
had  transferred  and  parted  with  his  title  to  the  instru- 
ment to  a  bo)ia  fide  holder,  who  would  have  a  right  to 
maintain  an  action  thereon  notwithstanding  such  recov- 
ery. With  the  exception  of  six  of  the  certificates  of 
deposit  sued  upon,  these  essential  requirements  were 
not  complied  with.  This  is  admitted  by  counsel  for 
appellees,  but  they  contend  that  the  necessity  for 
such  proof  was  obviated  by  the  introduction  in  evidence 
of  a  list  of  verified  claims  presented  to  the  assignee^ 


B  CAS]  STOCK  AND  STOCKHOLDERS  363 

Zang  v.  Wyant 

and  filed  by  him  with  the  clerk  of  the  district  courts 
and  the  subsequent  action  of  the  court  in  relation 
thereto,  from  which  it  appears  that  these  claims  were 
allowed  by  the  court,  and  dividends  ordered  paid  there- 
on. This  claim  is  based  upon  the  theory  that  such  an 
allowance  constitutes  a  judg-ment  binding- upon  the  bank 
and  also  upon  the  appellants.  We  think  this  view  is 
erroneous.  Such  allowance  does  not  constitute  a  judg-- 
ment  in  persoiiani,  even  ag-ainst  the  bank.  It  is  at  most 
a  judgfment  in  rem,  fixing-  the  status  of  the  claimant 
towards  the  assig-ned  property,  and  establishing-  his 
rig-ht  to  participate  in  the  benefits  of  the  assigfnment. 
Eppright  V.  KauflFman,  90  Mo.  25,  1  S.  W.  736.  We 
think,  therefore,  that  the  court  erred  in  allowing-  a  re- 
covery upon  these  certificates,  and  upon  the  Chilcott 
draft  forS13.25,  without  requiring- them  to  be  produced 
upon  the  trial,  or  their  loss  or  destruction  shown.  This 
necessitates  a  reversal  of  the  judgment,  so  far  as  the 
allowance  of  these  claims  is  concerned.  But,  since 
they  are  distinct,  and  can  easily  be  separated  from  the 
other  claims  that  were  properly  proved  and  allowed,  a, 
reversal  of  the  entire  judgment  may  be  avoided.  The 
judg-ment,  therefore,  as  to  all  the  appellees  except  those 
whose  recoveries  are  predicated  thereon,  is  affirmed  ; 
and  as  to  them  the  judg-ment  is  reversed,  and  the  cause 
remanded,  with  directions  to  allow  them,  or  such  of 
them  as  ma}"  elect  so  to  do,  a  reasonable  time  in  which 
to  suppl}'  the  proof  that  we  have  found  to  be  requisite 
in  such  cases,     Judg-ment  modified. 

On   Rehearing-. 

Per  Curiam.  On  petition  for  rehearing-  on  the  part 
of  appellants,  we  have  been  favored  with  elaborate 
and  able  argfuments,  both  printed  and  oral,  by  which 
the  main  questions  upon  which  the  decision  of  this 
cause  is  predicated  have  been  very  fully  presented  and 
arg-ued  ;  but,  after  mature  deliberation,  we  are  satisfied 
that  the  views  announced  in  our  former  opinion  are  cor- 
rect, and  fully  sustained  by  the  authorities  cited.  One 
question  arg-ued,  namely,  the  failure  of  appellees  to  make 


33+  STOCK  AND  STOCKHOIyDERS  [vOL  I 

Notes 

the  bank  and  assig-nee  parties  should  be  further  noticed, 
p^^j.^^  That  they  were  not  joined  as  plaintiffs  did 

not  render  the  complaint  defective,  in  failing- 
to  state  a  cause  of  action  against  the  stockholders,  for 
the  reason  already  g-iven,  that  the  liability  of  appellants 
as  shareholders  is  solely  for  the  benefit  of  the  creditors 
of  the  bank,  and  for  the  purpose  of  creating*  a  fund  over 
which  neither  the  bank  nor  its  assig-nee  has  any  con- 
trol or  authority  to  collect  ;  but  conceding-  that,  for  the 
purpose  of  a  complete  determination  of  all  the  rig-hts 
involved,  they  should  have  been  made  parties  defend- 
ant, by  virtue  of  either  section  497,  Mills'  Ann.  St.,  or 
section  16  of  the  Code,  the  failure  to  do  so  cannot  be 
considered  here,  because  appellants,  by  answering- over 
after  demurrer  on  the  g-round  of  defect  of  parties,  have 
waived  the  right  to  raise  the  question  on  appeal.  Car- 
Coupler  Co.  V.  Leag-ue,  25  Colo. — ,  54  Pac.  642.  Nor 
does  the  fact  that  neither  the  bank  nor  assig-nee  were 
jj  ^^^  made  parties  defendant  in  any  manner  affect 

the  rig-hts  of  the  stockholders,  because, 
whether  sued  alone,  or  in  connection  with  the  bank  and 
its  assig-nee,  they  would  have  the  rig-ht  to  interpose  any 
defense  to  the  claim  of  the  creditors  which  the  bank 
could. 

In  support  of  their  petition  for  rehearing-,  appellees 
have  broug-ht  in,  and  filed  with  the  clerk  of  this  court, 
certain  evidences  of  indebtedness  of  the   bank    which 

were  not  presented  on  the  trial  below,  and 

with  respect  to  which  the  judg-ment  has 
been  reversed,  and  ask  that  we  now  modify  our  former 
opinion  b}' directing-  judg-ment  upon  these  claims.  We 
cannot  consider  origfinal  evidence  in  the  case,  and  it  is 
obvious,  therefore,  that  the  directions  in  the  orig-inal 
opinion  with  reference  to  these  matters  are  proper. 
Petitions  for  rehearing-  denied. 

Campbell,  C.  J.,  not  participating  in  this  or  for- 
mer opinion. 

NOTES. 

Stockholder's   Statutory    Liability — By   Whom    Enforceable. — The 

statutes  creating-  the  liabilitj'  against  the  stockholders  were  enacted 
for  the  benefit   of  the  creditors,  and  it   is  these  creditors,   when  the 


I 


B  CAS]  STOCK  AND  STOCKHOLDERS  365 

Notes 

right  of  action  accrues,  that  are  authorized  to  maintain  the  action. 
This  doctrine  is  affirmed  and  settled  by  man}'  authorities.  See  Runner 
V.  Dwigg-ins  (Ind.),  6  Am.  &  Eng.  Corp.  Cas.,  N.  S.,  462;  Wallace 
V.  Milligan,  110  Ind.  498;  Ewing  v.  Stultz,  9  Ind.  App.  1  ;  Gainey  v. 
Gilson  (Ind. ), 7  Am.  &  Eng.  Corp.  Cas.,  N.  S.,  659  ;  Jacobson  :'.  Allen, 
12  Fed.  454  ;  Wright  v.  McCormack,  17  Ohio  St.  86 ;  Unistead  v.  Bus- 
kirk,  Id.  113  ;  Association  i'.  Watkins,  70  Mo.  13  ;  /;/  re  People's 
Live-stock  Ins.  Co.,  56  Minn.  180  ;  Pfohl  v.  Simpson,  74  N.  Y.  137  ; 
Farnsworth  i'.  Wood,  91  N.  Y.  308  ;  Wincock  v.  Turpin,  96  111.  135  ; 
Dutcher  v.  Bank,  12  Blatchf.  435,  Fed.  Cas.  No.  4,203  ;  Lane  v.  Mor- 
ris, 8  Ga.  468  ;  Elliott  R.  R.  i^i$  185-187  ;  Mor.  Priv.  Corp.  i<  869  ; 
Thomp.  Corp.  §  3560  ;  Taylor,  Priv.  Corp.  i^  721 ;  Cook,  Stock  &  S.  ?; 
216;  Paper  Co.  v.  Swinburne  (Minn.)  69  N.  W.  144. 

Judge  Thompson,  in  his  Commentaries  on  Corporations,  in  the 
section  cited,  says  :  "It  may  be  stated  as  a  g-eneral  rule  that  statutes 
making  stockholders  individually  liable  to  creditors,  independently 
of  what  they  owe  the  corporation  on  account  of  their  stock,  create  a 
right  following  directly  from  the  stockholders  to  creditors.  The 
sums  thus  secured  to  creditors  form  no  part  of  the  assets  of  the  com- 
pany, but  are  a  supplemental  or  superadded  security  for  the  benefit 
of  creditors.  An  attempted  assignment  of  this  security  is  therefore 
inoperative.  No  action  to  enforce  such  liability  can  be  brought  by 
a  receiver  or  assignee  of  the  corporation  ;  such  an  action  must  be 
broug-ht  by  one  or  more  of  the  creditors."  In  Cook  on  Stock  & 
Stockholders,  in  the  section  to  which  we  have  referred,  the  author 
says  :  "The  statutory  liability  of  a  stockholder  is  created  exclusively 
for  the  benefit  of  the  corporation  creditors.  It  is  not  numbered 
among  the  assets  of  the  corporation,  and  the  corporation  has  no  in- 
terest in  it.  It  cannot  be  enforced  by  assessment  upon  the  share- 
holders. Nor  can  the  corporation,  on  insolvency  assign  it  to  a 
trustee  for  the  benefit  of  corporate  creditors."  In  the  case  of  Jacob- 
son  V.  Allen,  supra,  it  is  said  :  "The  receiver  of  an  insolvent  corpo- 
ration takes  his  title  through  the  corporation.  He  cannot,  through 
his  appointment,  acquire  that  which  the  corporation  never  had.  He 
represents  the  creditors  of  the  corporation  in  the  administration  of 
his  trust,  but  his  trust  relates  only  to  the  corporate  assets.  As 
trustee  for  creditors,  he  represents  them  in  following  the  assets  of 
the  corporation,  and  can  assert  their  rights  in  cases  where  the  cor- 
poration could  not  have  been  heard.  He  is  not  a  trustee  for  creditors 
in  relation  to  assets  which  belong  to  them  individually  or  as  a  bod}'. 
*  *  *  *  Neither  a  receiver,  an  assignee  in  bankruptcy,  nor  an  as- 
signee under  a  voluntary  general  assignment  for  the  benefit  of 
creditors,  each  of  whom  represents  creditors  as  well  as  the  insolvent, 
acquires  any  right  to  enforce  a  collateral  obligation  given  to  a  cred- 
itor or  to  a  body  of  creditors  by  a  third  person  for  the  payment  of 
the  debts  of  the  insolvent." 

Same — Enforcement — Necessity  of  Judgment. — The  rule  that  a 
creditor  must  have  obtained  a  judgment  against  the  corporation 
with  a  return  of  nulla  bona  before  proceeding  to  enforce  the  stock- 
holder's statutory  liability  does  not  generally  hold  g-ood  as  to  a 
bankrupt,  dissolved  or  extinct  corporation.  Chamberlin  v.  Brom- 
berg,  83  Ala.  576;  McDonnell  v.  Alabama  Gold  L.  Ins.  Co.,  85  Ala. 
401;  Paine  7'.  Stewart,  33  Conn.  516;  Gibbs  r'.  Davis,  27  Fla.  531; 
Kimbro  v.  Bank  of  Fulton,  49  Ga.  419  ;  Patterson  v.  Lynde,  112  111. 
196,  10  Am.  &  Eng.   Corp.  Cas.  195  ;    First  Nat.   Bank  v.   Greene,  64 


366  STOCK  AND  STOCKHOLDERS  [vOL  I 

Notes 

Iowa  445  ;  Stark  v.  Burke,  9  La.  Ann.  341;  Knight  v.  Frost,  14  Mo. 
App.  231  ;  Dryden  v.  Kellogg,  2  Mo.  App.  87;  State  Sav.  Assoc,  v. 
Kellogg,  52  Mo.  583;  Remington  v.  Sauiana  Bay  Co.,  140  Mass.  494, 
12  Am.  &  Eng.  Corp.  Cas.  97  ;  Chamberlain  v.  Huguenot  Mfg.  Co., 
118  Mass.  532  ;  Shellington  v.  Howland,  53  N.  Y.  371  ;  Ansonia 
Brass,  etc.,  Co.  v.  New  Lamp  Chimney  Co.,  53  N.  Y.  123,  13  Am. 
Rep.  476  ;  Kincaid  v.  Dwinelle,  59  N.  Y.  548  ;  Walton  v.  Coe,  110  N. 
Y.  109  ;  Hardman  v.  Sage,  124  N.  Y.  25,  36  Am.  &  Eng.  Corp.  Cas. 
145;  Camden  v.  Doremus,  3  Ho\y.  Pr.  (N.  Y.)  515;  Lovett  v.  Corn- 
wall, 6  Wend.  (N.  Y.)369;  People  t'.  Bartlett,  3  Hill  (N.  Y.)  570; 
Loomis  V.  Tifft,  16  Barb.  (N.  Y.)  541  ;  Walser  v.  Seligman,  21  Blatchf . 
(U.  S.)  130;  Hollingshead  v.  Woodward,  35  Hun  (N.  Y.)  410  ;  Pen- 
niman  v.  Briggs,  1  Hopk.  (N.  Y.)  300;  Slee  v.  Bloom,  19  Johns.  (N. 
Y.)  456,  10  Am.  Dec.  273;  Bank  of  Poughkeepsie  v.  Ibbotson,  24 
Wend.  (N.  Y.)  479  ;  Richards  v.  Beach,  5  N.  Y.  Supp.  574  ;  Young  v. 
Brice,  18  N.  Y.  St.  Rep,  945  ;  Hodges  v.  Silver  Hill  Min.  Co.,  9  Ore- 
gon 200;  Morgan  v.  Lewis,  46  01iioSt.  1  ;  Barrick  z^.  Gilford,  47  Ohio 
St.  180,  21  Am.  St.  Rep.  798  ;  Bronson  v.  Schneider  (Ohio,  1892),  33 
N.  E.  Rep.  233  ;  Moses  v.  Oconee  Bank,  1  Lea  (Tenn.)  398  ;  Terry  v. 
Tubman,  92  U.  S.  156  ;  Flash  v.  Conn,  109  U.  S.  371,  3  Am.  &  Eng. 
Corp.  Cas.  28;  Reynolds  v.  Douglass,  12  Pet.  (U.  S.)  497  ;  Toucey  v. 
Bowen,  1  Biss.  (U.  S.)  81  ;  Terry?'.  Anderson,  95  U.  S.  628.  See 
also  Cuykendall  v.  Douglas,  19  Hun  (N.  Y.)  577. 

But  the  mere  fact  that  corporate  property  is  insufficient  to  meet 
liabilities  will  not  take  a  case  out  of  the  rule.  Younglove  v.  Kelly 
Island  Lime  Co.    (Ohio,  1892),  33  N.  E.  Rep.  234. 

Same — Double  Liability — Construction  of  Statutes. — In  Root  v. 
Sinnock,  120  111.  350,  19  Am.  &  Eng.  Corp.  Cas.  317,  60  Am.  Rep.  559, 
the  bank's  charter  contained  this  proviso:  "Provided  also  that  the 
stockholders  in  this  corporation  shall  be  individually  liable  to  the 
amount  of  their  stock  for  all  debts  of  the  corporation,  and  such  lia- 
bility shall  continue  for  three  months  after  the  transfer  of  any  stock 
on  the  books  of  the  corporation."  It  was  held  that  the  stockholders 
were  each  individually  liable  to  pay  to  the  creditors  of  the  bank,  not 
merely  the  balance  unpaid  upon  subscriptions  for  stock,  but  to  the 
extent  of  the  nominal  or  face  value  of  the  stock  held  by  them  for 
debts  of  the  bank.  And  Schoi,fiei.d,  J.,  for  the  court,  observed  : 
"The  contention  of  appellant  is,  that  the  liability  imposed  by  the 
seventh  section  of  the  charter  of  the  Union  Bank  of  Ouincj',  upon 
the  stockholders,  is  simply  to  pay  creditors  of  the  bank  the  balance 
unpaid  upon  subscriptions  for  stock.  The  language  of  the  seventh 
section,  affecting  this  question,  is  :  'Provided  also  that  the  stock- 
holders of  this  corporation  shall  be  individually  liable  to  the  amount 
of  their  stock,  for  all  debts  of  the  corporation  ;  and  such  liability 
shall  continue  for  three  months  after  the  transfer  of  any  stock  on 
the  books  of  the  corporation.'  The  plain  and  obvious  meaning  of 
this  language  is,  to  our  minds,  the  stockholders  are  liable  to  credi- 
tors for  their  debts,  to  an  extent  measured  by  the  amount  of  their 
stock.  Omitting  the  clause  expressing  the  extent  of  liability, 
we  have  this  :  'The  stockholders  of  this  corporation  shall  be  in- 
dividually liable  for  all  debts  of  the  corporation.'  If  this  were  all, 
their  liability  would  be  unlimited — they  would  be  absolutely  liable 
for  all  debts  of  the  corporation.  The  intention,  however,  is  to  limit 
that  liability  ;  but  to  what  extent?  The  answer  is  :  'To  the  amount 
of  their  stock' — not  to   the   amounts  unpaid   on    their   stock.     The 


B  CAS]  STOCK  AND  STOCKHOLDERS  367 

Notes 

languag-e  makes  the  liability  because  of  the  fact  of  being-  stockhold- 
ers, and  not  because  of  the  fact  of  being  debtors  of  the  corporation. 
If  the  liability  intended  was  simply  to  pay  the  creditor  the  amount 
due  the  corporation,  what  would  have  been  more  natural  and  easy 
than  to  have  used  just  that  lang-uage?"  Under  a  statute  making- 
stockholders  liable  for  debts  existing  against  the  corporation  at  the 
time  of  the  dissolution  "to  the  extent  of  their  respective  shares  of 
stock,"  their  liability  extends  not  merely  to  the  loss  of  the  amount 
of  the  stock,  but  to  a  further  sum  equal  to  such  amount,  if  necessary 
to  pay  the  debts.  Briggs  v.  Penniman,  8  Cow.  (N."Y. )  387,  18  Am. 
Dec.  454.  See  also  McDonnell  z'.  Alabama  Gold  L,.  Ins.  Co.,  85  Ala. 
401  ;  Pettibone  v.  McGraw,  6  Mich.  441  ;  Sacketts  Harbor  Bank  v. 
Blake,  3  Rich.  Eq.  (S.  Car.)  225.  But  the  contrary  rule  is  held  in 
Lewis  v.  St.  Charles  County,  13  Mo.  App.  48.  See  also  Schricker  v. 
Ridings,  65  Mo.  208  ;  Gausen  ?'.  Buck,  68  Mo.  545. 

The  provision  that  stockholders  shall  be  liable  "to  an  amount 
€qual  to  their  stock"  is  generally  held  to  render  stockholders  liable 
for  a  sum  equal  to  their  full  subscription  after  the  latter  has  been 
paid.  "Wheeler  z'.  Miller,  90  N.  Y.  359;  /w  re  Empire  City  Bank,  18 
N.  Y.  199;  Ohio  E.  Ins.,  etc.,  Co.  z'.  Merchants'  Ins.,  etc.,  Co.  11 
Humph.  (Tenn.)  1,  53  Am.  Dec.  742;  Lewis  v.  St.  Charles  County, 
5  Mo.  App.  225;  Briggs  v.  Penniman,  8  Cow.  (N.  Y.)  387,  18  Am. 
Dec.  454  ;  Bank  of  Poughkeepsie  z'.  Ibbotson,  24  Wend.  (N.  Y.)  473. 

The  phrase  "to  double  the  amount  of  the  stock  held  by  them", 
creates  a  liability  for  twice  the  amount  of  the  subscription.  Parish's 
Appeal  (Pa.  1890),  19  Atl.  Rep.  569;  Perry  v.  Turner,  55  Mo.  418  ; 
Matthews  v.  Albert,  24  Md.  527  ;  Norris  v.  Johnson,  34  Md.  485  ; 
Booth  V.  Campbell,  37  Md.  522  ;  Schricker  v.  Ridings,  65  Mo.  208  ; 
Gay  z'.  Keys,  30  111.  413. 

But  a  provision  for  liability  "to  an  amount  equal  to  the  amount 
unpaid  on  the  stock"  imposes  no  obligation  to  pay  be3'ond  par 
value.  Patterson  v.  Lvnde.  106  U.  S.  519,  10  Am.  &  Eng.  Corp. 
Cas.  195  ;  Stephens  v.  Fox,  83  N.  Y.  313  ;  Mills  v.  Stewart,  41  N. 
Y.  384;  Brundage  v.  Monumental,  etc.,  Min.  Co.,  12  Oregon  322 ; 
Ladd  z'.  Cartwright,  7  Oregon  329. 

Books  as  Evidence  of  Membership. — The  books  of  the  corporation 
are  prhna  facie  evidence  of  its  membership.  Semple  v.  Glenn,  91 
Ala.  245,  24  Am.  St.  Rep.  894  ;  Howard  v.  Glenn,  85  Ga.  238,21  Am. 
St.  Rep.  156;  Coffin  v.  Collins,  17  Me.  440;  Penobscot  R.  Co.  v. 
Dummer,  40  Me.  172,  63  Am.  Dec.  654  ;  Whitman  v.  Grantie  Church, 
24  Me.  236  ;  Downing  v.  Potts,  23  N.  J.  L.  66  ;  In  re  Election  of 
Officers,  44  N.  J.  L.  529,  1  Am.  &  Eng.  Corp,  Cas.  359 ;  Lewis  v. 
Glenn,  84  Va.  947  ;  Vanderwerken  v.  Glenn,  85  Va.  9  ;  In  re  St. 
Lawrence  Steamboat  Co.,  44  N.  J.  L.  529,  1  Am.  &  Eng.  Corp.  Cas. 
359 ;  Hamilton,  etc..  Plank  R.  Co.  ?-.  Rice,  7  Barb.  (N.  Y.)  157; 
Hoagland  v.  Bell,  36  Barb.  (N.  Y.)  57  ;  McHose  v.  Wheeler,  45  Pa. 
St.  32  ;  Bank  of  Commerce's  Appeal,  73  Pa.  St.  59  ;  Glenn  v.  Orr, 
96  N.  Car.  413  ;  Haynes  v.  Brown,  36  N.  H.  545;  Pittsburgh,  etc., 
R.  Co.  V.  Applegate,  21  W.  Va.  172,  16  Am.  &  Eng.  R.  Cas.  440; 
Glenn  v.  McAllister,  46  Fed.  Rep.  883  ;  Glenn  v.  Liggett,  47  Fed. 
Rep.  472;  Turnbull  v.  Pay  son,  95  U.S.  418;  Rockville  Turnpike, 
etc.,  Co.  V.  Van  Ness,  2  Cranch  (C.  C.)  449  ;  Stephens  v.  Follett,  43 
Fed.  Rep.  842,  31  Am.  &  Eng.  Corp.  Cas.  466  ;  Taylor  v.  Hughes,  2 
Jones  &  L.  (Ir.  Ch.)  55. 

In  Rhode  Island,  a   book  purporting  to  be  the  record    book  of  the 


368  STOCK  AND  STOCKHOLDERS  [vOL  I 

Notes 

conipanj',  containing^  entries  authenticated  in  part  by  the  secretary's 
signature  and  in  part  identified  by  the  bookkeeper  who  copied  them, 
is  admissible.  Cong-don  v.  Winsor,  17  R.  I.  236,  36  Am.  &  Eng-. 
Corp.  Cas.   199. 

When  books  have  been  lost,  a- certified  copy  of  the  recorded  list  of 
stockholders  is  prima  facie  evidence  as  to  the  ownership  of  the  stock. 
Cleveland  v.   Burnham,  64  Wis.  347,  10    Am.  &  Eng-.    Corp.  Cas.  221. 

Same  —  Eng;lish  Rule. — A  pap6r  containing-  none  of  the  essentials  re- 
quired by  the  act  of  incorporation,  thougrh  styled  a  reg^ister  of  share- 
holders, is  not  a  sufficient  evidence  of  membership.  Wolverhampton, 
etc.,  Co.  V.  Hawksford,  7  C.  B.,  N.  S.,  795,  97  E.  C.  L.  795.  But  the 
register  may  be  evidence,  thoug-h  not  authenticated.  Cornwall,  etc.. 
Min.  Co.  V.  Bennett,  5  H.  «&  N.  432.  And  a  requirement  that  the 
reg-ister  be  sealed  within  a  certain  time  is  directory  merely  ;  with- 
out such  sealing  a  subscriber  may  be  held  liable  for  calls.  Wolver- 
hampton, etc.,  Co.  V.  Hawksford,  11  C.  B.,  N.  S.,  456,  103  E.  C  L. 
456.  Where  the  company  is  required  to  keep  two  registers  which  are 
to  be  prima  facie  evidence  of  membership,  production  of  both  is 
necessary,  though  either  contains  the  list  of  members  ;  but  where 
the  defendant  is  properly  registered,  it  is  no  objection  to  the  suf- 
ficiency of  the  evidence  that  other  members  are  not.  London,  etc., 
R.  Co.  V.  Fairclough,  2  M.  &  G.  674. 

But  Hill  V.  Manchester,  etc.,  Co.,  5  B.  &  Ad.,  866,  holds  that  corpo- 
rate minutes  are  not  admissible  on  behalf  of  the  company  in  a  suit 
against  it  by  one  of  its  stockholders. 

Same  — Examples. — When  the  name  of  an  individual  appears  on 
the  stock  book  of  a  corporation  as  a  stockholder,  the  prima  facie 
presumption  is  that  he  is  the  owner  of  the  stock  ;  and  in  an  action 
against  him  as  a  stockholder  the  burden  of  proving  that  he  is  not  a 
stockholder,  or  of  rebutting  the  presumption,  is  cast  upon  him. 
Holland  v.  Duluth  Iron  Mining  &  Development  Co.  ct  al.,  4  Am.  & 
Eng.  Corp.  Cas..  N.  S.,  381. 

When  a  person's  name  appears  on  the  books  of  a  corporation  as  a 
stockholder,  the  presumption  is  that  he  is  the  owner  of  the  stock, 
and  the  onus  is  on  him  to  show  that  his  name  was  not  subscribed  by 
himself  nor  by  his  authority,  express  or  implied  ;  and  the  books  are 
admissible  as  evidence  against  him,  though  he  denies  the  genuine- 
ness of  his  subscription  bv  plea  verified  by  affidavit.  Semple  v. 
Glenn  (Ala.)  35  Am.  &  Eng-  Corp.  Cas.  618.  In  Glenn  v.  Orr,  96 
N.  Car.  413,  the  books  were  held  as  evidence  in  an  action  to  recover 
an  assessment  of  membership  and  the  state  of. member's  account. 

The  books  of  a  corporation  which,  in  proceedings  previouslj'  insti- 
tuted in  a  court  of  chancery,  had  been  identified  by  the  superintend- 
ent and  trustee  of  the  company,  who  also  proved  the  handwriting 
of  the  various  officers  of  the  company,  by  whom  they  were  written  and 
kept,  are  properly  admitted  in  evidence,  in  a  subsequent  action  to 
enforce  the  liability  of  the  stockholders,  when  identified  by  a  per- 
son who  was  present  in  the  chancery-  court  when  the  books  were 
produced  and  identified.  Vanderwerken  v.  Glenn,  13  Va.  L.  J.  91  : 
6  S.  E.  Rep.  806,21  Am.  &  Eng.  Corp.  Cas.  527. 

Corporate  Books  as  Evidence  to  Show  Who  Are  Stockholders. — 
The  books  of  a  corporation  furnish  evidence  as  to  what  persons  are 
entitled  to  the  rights  and  privileges  of  stockholders,  and  as  to  whom 
creditors  may  look  for  payment  when  the  corporation  becomes  in- 
solvent, the   creditors  being  presumed  to  have  relied   on  the  books. 


B  CAS]  STOCK  AND  STOCKHOLDERS  369 

State  (f.r  rel.  Burke  :'.  Citizens'  Bank  of  Jennings 

United  States  Wind-Engine  &  P.  Co.  v.  Davis,  (Kan.)  42  Pac.  Rep. 
590. 

Same — Not  Conclusive.  But  they  are  not  conclusive  evidence  of 
membership.  Mudgett  v.  Horrell,  33  Cal.  25  ;  Chaffin  v.  Cummings, 
37  Me.  76  ;  Brewster's  F.  Ins.  Co.  ?'.  Burger,  10  Hun  (N.  Y.)  56  ; 
Stephens  v.  Follett,  43  Fed.  Rep.  842,  31  Am.  &  Eng.  Corp.  Cas.  466  ; 
Waterford,  etc.,  R.  Co.  v.  Pidcock,  8  Esch.  279. 

Under  the  New  York  statute  the  court  is  warranted  in  going  be- 
hind the  entries  in  the  transfer  book  to  determine  membership. 
Strong  V.  Smith,  15  Hun  (N.  Y.)  222. 

Same — Not  Evidence. — But  it  is  held  in  California  that  the  stock 
book  of  a  corporation  is  not  admissible  to  prove  a  party  a  stock- 
holder, in  an  action  by  a  creditor  of  the  company  against  him. 
iVJudgett  V.  Horrell,  33  Cal.  25.  And  in  Pennsylvania,  it  is  said  that 
the  books  of  a  corporation  purporting  to  contain  subscriptions  to 
the  stock  of  the  company  are  not,  of  themselves,  evidence  of  the 
existence  of  such  subscriptions.  Philadelphia  &  W.  C.  R.  Co.  v. 
Hickman,  28  Pa.  St.  318.  See  also  Hill  v.  Manchester,  etc.,  Co.,  5  B. 
is.  Ad.,  866  and  see  the  principal  case. 

The  business  transactions  of  a  corporation  with  its  members  are 
on  the  same  footing  as  its  transaction  with  strangers,  and  business 
entries  in  its  books  of  account  are  not  more  evidence  against  the 
members  than  they  are  against  strangers.  Rudd  v.  Robinson,  126 
N.  Y.  113,  33  Am.  &  Eng.  Corp.  Cas.  301. 

Certificates  of  Deposit. — A  certificate  of  deposit  being  a  negotia- 
ble instrument,  the  bank  has  a  right,  upon  payment  of  the  deposit, 
to  insist  that  the  certificate  shall  be  produced  and  delivered  up  to  it  ; 
and  where  payment  is  demanded  and  it  appears  that  the  certificate 
is  in  the  hands  of  a  third  person  claiming  title  to  it,  the  bank  may 
properly  refuse  paj-ment,  and  this  although  a  bond  of  indemnity  be 
tendered  to  it.     Read  v.  Marine  Bank,  59  Hun  (N.  Y.)  578. 


State  ex  rcl,  Burke 

V. 

Citizens'  Bank  of  Jennings. 

{Supreme  Court  of  Louisiana,  Jan.  g,  i8gg.) 

Banks— Right  of  Stockholder  to  Inspect  Books. *~A  shareholder, 
or  other  person,  with  a  laudable  object  to  accomplish,  or  a  real  and 
actual  interest  upon  which  to  predicate  his  request  for  information 
disclosed  by  the  books  of  a  bank,  is  given  by  the  fundamental  law 
the  right  to  inspect  them. 

Same— Same—Agents.*— The  claim  that  the  right  of  inspection  is 
strictly   personal   to  the   shareholder,    and   cannot  be  exercised    by 

*See  notes  at  end  of  cavse. 
B  CAS --24 


370  STOCK  AND  STOCKHOLDERS       [vOL  I 

State  e.x-  rel.  Burke  r.  Citizens'  Bank  of  Jennings 

another  for  him,  and  in  his  stead,  as  an  agent  or  executor,  is  with- 
out force  ;  for,  if  that  were  true,  the  possession  of  the  right  would 
be  futile  in  manj'  instances. 

Same — Same — By-laws.— A  b3'-law  of  a  corporation,  which  pro- 
vides that  no  stockholder  or  other  person  shall  have  the  right  to 
inspect  the  books  without  special  authority  from  the  board  of 
directors,  must  be  subordinated  to  the  provisions  of  the  charter  and 
the  general  and  fundamental  law. 

On  Rehearing. 

Compensation  of  Expert. — While,  in  a  proper  case,  an  accountant 
or  expert  may  be  appointed  by  the  court  to  assist  a  party  in  interest 
in  the  examination  the  law  gives  him  the  right  to  make  of  the  books 
of  a  bank  or  other  corporation,  no  part  of  the  compensation  to  be 
paid  such  expert  should  be  assessed  against  the  defendant  bank  or 
corporation. 

(Syllabus  by  the  Court.) 

Appeal  by  defendant   from  parish  of  Calcasien  ju- 
dicial district  court.      Modijicd. 

Cline  &  Cline,  for  appellant. 
Schxviiiir  d'  Moore,  for  appellee. 

Watkins,  J.     The   relatrix,  as  executrix  of  Dr.  E. 

M.    Burke,  deceased,    instituted    suit    in  the    district 

court,  coupled  with  an  application  for  a  writ  of  mcuida- 

})ii(s,    to    compel    the    respondent    bank    to 

Case  Stated.  '  .  ,      ,  ,  ^    ,  .       ^  ,     ,  , 

permit  her  to  have  view  and  to  make  an 
inspection  of  the  books  of  the  bank,  allegfino-  that  the 
deceased  at  his  death  was  the  owner  and  possessor  of 
15  shares  of  the  capital  stock  of  the  bank,  and  that  the 
estate  under  her  administration  is  still  the  owner 
thereof.  She  avers  that  under  the  constitution  and 
laws  of  the  state  she  has  the  rio-ht  to  inspect  and  ex- 
amine the  books  of  said  bank  for  the  purpose  of  ascer- 
taining-, among-  other  thing's,  the  amount  of  capital 
stock  subscribed,  the  names  of  the  owners  of  stock, 
the  amounts  owned  by  them,  res])ectively,  the  amount 
of  stock  paid  up,  the  transfers  of  stock,  and  the  dates 
thereof,  and  the  amount  of  assets  and  liabilities  of  the 
bank.  She  further  avers  "that  said  rig-ht  is  valuable, 
and  the  exercise  thereof  necessary  to  enable  her  to 
ascertain  the  real  value  of  said  stock,  what,  if  any, 
dividends  are  due  thereon,  the  condition  of  said  estate 
in  account  with  said  bank,  the  solvency  or  insolvency 


.B  CAS]  STOCK  AND  STOCKHOLDERS  371 

State  ex  rel.  Burke  v.  Citizens'  Bank  of  Jennings 

thereof,  and  the  best  interests  of  said  estate  in  connec- 
tion therewith."  She  alleges  that  due  demand  was 
made  upon  the  leg-al  custodian  of  said  books  and  assets 
"for  permission  to  make  an  inspection  and  examina- 
tion, "and  that  said  demand  was  peremptorily  refused, 
and  that  said  refusal  was  a  denial  of  justice,  and  "left 
her  without  remedy  by  the  ordinary  course  of  law." 
For  answer,  the  respondent  pleads  the  g-eneral  issue, 
and  then  specially  denies  that  the  relatrix,  "in  her 
capacity  of  executrix  or  in  any  other  capacity,  has  a 
rig"ht  to  examine  or  inspect  the  books  of  said  bank,  or 
that  the  exercise  of  the  said  pretended  rig^ht  is  neces- 
sary to  subserve  the  interests  of  the  succession  of  the 
said  Burke,  or  that  he  ever  demanded  the  rig-ht  to 
examine  the  books  of  the  bank."  He  alleg^es  that  the 
relatrix  personally  is  unfriendly  to  the  bank,  and  that 
she  does  all  of  her  own  business  throug-h  another  bank, 
and  persistently  seeks  to  deter  her  friends  from  patron- 
izing- the  respondent  bank  ;  that  she  is  not  a  stock- 
holder of  said  bank,  and  has  no  interest  in  the  conduct 
or  manag-ement  of  its  business  ;  and  that,  being- advised 
of  her  unfriendliness,  it  fears  and  has  just  grounds  to 
apprehend  "the  daraag^e  shemightbeabletodo  respond- 
ent's business,  if  permitted  to  examine  the  books  of 
the  bank,  where  she  could  learn  the  names  of  its  cus- 
tomers, their  financial  standing*  in  the  community,  and 
other  business  secrets, the  divulg-ence  of  which  would  be 
ruinous  to  the  business  interests  of  the  respondent." 
The  further  averment  is  that  the  relatrix  "persistently 
follows,  in  her  business  affairs,  the  advice  of  one  L. 
M.  Valdetero,  who  is  notoriously  unfriendly  to  the 
interests  of  the  respondent  bank  ;  and  that  he  is  plain- 
tiff in  a  suit  now  pending-  before  your  honorable  court 
wherein  he  seeks  to  recover  $10,000  as  alleged  damages 
against  the  respondent";  that  "the  monthly  sworn 
statements  of  the  affairs  of  respondent  bank  contain 
ample  information  to  all  those  interested  in  said  bank 
as  to  its  financial  condition,  the  value  of  its  stock,  what 
dividends  are  due  thereon,  and  as  to  its  solvency  ;  that, 
moreover,  the    cashier  of    said  bank   has  offered,  and 


372  STOCK  AND  STOCKHOLDERS  [vOL  I 

State  e.v  re/.  Burke  zk  Citizens'  Bank  of  Jennings 

still  stands  ready,  to  furnish  plaintiff  a  full  and  com- 
plete statement  of  the  account  of  the  succession  of  K. 
M.  Burke  with  the  said  bank,"  Respondent  further 
avers  that  under  a  by-law  of  the  bank  "no  stockholder 
or  any  other  person  shall  have  the  rig-ht  to  inspect  the 
books  of  the  bank  without  special  authority,"  and  that 
no  such  authority  was  ever  applied  for,  or  granted  by 
the  board  of  directors  of  the  bank  ;  that  said  by-law 
is  in  strict  accord  with  the  custom  and  usag^e  among* 
banks,  and  that  such  application  is  and  was  a  condition 
precedent  to  permission  being-  granted  for  an  examina- 
tion b}^  other  than  reg^ular  officers  of  the  bank  ;  and 
that,  if  the  relatrix  did  make  demand  upon  the  presi- 
dent or  cashier  of  the  bank  for  permission  to  make  an 
examination  of  the  books  of  the  bank,  they  were  wholly 
without  authority  to  g-rant  the  request  without  the 
sanction  of  the  board  of  directors  being*  first  obtained. 
The  case  was  tried,  and  decided  in  favor  of  the  relatrix, 
and  the  writ  of  Diandaniiis  was  made  peremptory,  and 
from  that  judgment  the  respondent  has  prosecuted  this 
appeal. 

The  transcript  presents  us  with  a  brief  statement  of 
facts,  which  is  herewith  transcribed  in  part,  viz.\ 
"That  at  the  time  of  his  death  K,  M.  Burke  was  a 
stockholder,  and  that  the  estate  is  still  ovv^ner  of  fifteen 
shares  ($1,500.00)  of  stock,  in  the  Citizens'  Bank  of 
Jenning-s,  La.  That  Mrs.  Burke,  executrix,  accom- 
panied by  L.  M.  Valdetero,  called  *  *  "  at  the 
bank,  and  asked  to  be  allowed  to  inspect  and  examine 
the  accounts  of  said  K.  M.  Burke  with  said  bank  on 
the  bank's  books,  etc.  That  the  cashier  states  that 
she  only  asked  to  examine  Dr.  Burke's  account, 
[thoug-h]  all  agree  that  he  refused,  and  that  he  w^as  and 
is  the  custodian  of  the  books  of  the  bank.  That  the  evi- 
dence shows  that  an  effort  was  made  to  see  the  presi- 
dent, but  that  he  was  absent  from  the  parish.  The 
evidence  shows  that  L.  M.  Valdetero  has  a  suit  ag-ainst 
the  bank,  and  is  unfriendly  with  the  cashier,  but 
friendl}^  with  the  stockholders  and  officers  of  the  bank." 
On  this  state  of  the  pleadings  and  evidence,  the  ques- 


B  CAS]       STOCK  AND  STOCKHOLDERS  373 

State  e.v  re/.  Burke  z'.  Citizens'  Bank  of  Jenning-s 

tion  for  decision  is  whether  the  relatrix  is  entitled  to 
the  relief  she  demands,  and  which  was  g-ranted  by  the 
judg-e  a  quo. 

The  first  and  principal  point  taken  b}'  the  counsel 
for  respondent  is   that  the  relatrix  is  without  interest 
as  a  stockholder,  and  for  that  reason   without  right  to 
demand  an  inspection   of  the   books  of  the 
bank  ;  she  beingf  merely  the  executrix  of  a  J*"!^';^?'?'!* "^ 

1  1111  1         ■l^  Stockholder  to 

deceased  stockholder,  and  without  any  per-  inspect  Books. 
sonal  rit^ht  of  examination.  The  constitution 
of  1879  made  it  the  duty  of  all  corporations  org-an- 
ized  or  doing-  business  in  this  state  under  the  laws  or  au- 
thority thereof  to  have  and  maintain  a  public  office  for 
the  transaction  of  its  business,  "and  where  shall  be  kept 
for  public  inspection  books  in  which  shall  be  recorded 
the  amount  of  the  capital  stock  subscribed,"  etc.  Const. 
1879,  art.  245.  In  the  recent  decision  of  this  court  in 
State  ex  reL  Bourdette  v.  New  Orleans  Gaslig-ht  Co., 
49  La.  An.  1556,  22  South.  815,  it  was  held  that  the 
rig-ht  conferred  by  that  article  secures  to  stockholders 
of  a  corporation  the  rigfht  to  inspect  its  books,  and,  if 
the  rig-htof  inspection  be  unreasonably  denied,  Dumda- 
vius  would  lie  to  enforce  it  ;  but  the  court  said  that  "by 
'public  inspection'  is  meant,  not  the  inspection  of  the 
idle,  the  impertinent,  or  the  curious, — those  without 
an  interest  to  subserve,  or  advance,  or  protect.  It  was 
never  contemplated  that  any  and  everybody,  as  the 
whim  may  seize  him  or  them,  should  be  permitted  to 
walk  into  the  office  of  the  company  or  corporation,  and 
pry  into  its  affairs.  But  a  shareholder  or  other  fer- 
soii,  zvith  a  laudable  object  to  accoviplisJu  or  a  real  or 
actual  interest  upon  zuhich  to  predicate  his  request  for 
iuformatiou  disclosed  by  t/ie  books,  is  g"iven,  by  the 
fundamental  law  itself,  the  rig-ht  to  inspect  them." 
{Our  italics.)  In  our  opinion,  the  relatrix,  as  the 
executrix  of  a  deceased  shareholder  of  the  stock  of  the 
respondent  bank,  has  brought  herself  within  the  scope 
and  plain  intendment  of  that  decision,  and  thus  dis- 
closed an  interest  sufficient  to  justify  a  resort  to  man- 
damus.    Indeed,  we   can  perceive   no  reason  why  the 


374  STOCK  AND  STOCKHOLDERS  [VOL,  I 

State  ex  rel.  Burke  v.  Citizens'  Bank  of  Jennings 

person  representing'  as  executrix  the  deceased  share- 
holder, should  not  have  the  same  rig-ht  of  inspection 
pro  hac  vice  as  the  latter  had  while  living.  That  she 
is  not  personally  a  shareholder  of  the  respondent  bank, 
and  perhaps  a  shareholder  of  another  bank,  could  not 
be  reasonably  considered  as  excluding  the 
Stl^*"^"  rig-ht  of  the  estate  altogether  ;  nor  do  we 
consider  the  particular  danger  pointed  out 
in  the  defendant's  return  as  likely  to  result  from  the 
inspection  proposed  as  sufficient  to  justify  a  refusal  of 
relief  to  the  executrix  altog-ether.  Of  course,  proper 
care  should  be  taken,  in  the  exercise  of  the  rig-ht  of 
inspection  accorded  to  her,  that  the  interest  of  the 
bank  be  amply  protected  and  safegfuarded  from  idle 
curiosity  or  undue  inquisitiveness  into  the  private 
affairs,  not  appertaining  to  the  leg"itimate  objects  to  be 
attained  by  the  inspection.  Nor  should  the  one  exam- 
ining- into  the  affairs  of  the  bank  be  permitted  to  exam- 
ine into  the  matter  of  depositors'  accounts,  to  find  out 
who  are  depositors  ;  if  any  one  is  a  depositor,  the 
amount  to  his  credit ;  or  anything-  connected  with 
private  matters  of  depositors. 

Article  273  of  the  constitution  of  1898  is  identical 
with  that  of  article  245  of  1879.  In  Legendre  v.  As- 
sociation, 45  La.  Ann.  669,  12  South.  837,  a  similar  in- 
terpretation was  placed  upon  the  latter  article  as  was 
done  in  the  Bourdette  Case,  and  in  the  course  of  our 
opinion,  we  said  :  "The  constitutional  right  to  inspect 
the  books  [of  a  corporation  at  a  reasonable  time]  cannot 
reasonably  be  denied.  There  can  be  no  question  that 
the  ownership  of  stock  confers  the  authority  to  see  that 
the  property  is  well  manag-ed.  The  exercise  of  this 
authorit}^  involves  primarilv  the  rig-ht  to  examine  the 
books."  In  State  v.  Bienville  Oil-Works  Co.,  28  La. 
Ann.  204,  the  particular  question  here  presented  was 
decided  adversely  to  the  present  contention  of  respond- 
ent thus,  viz.:  "The  objection  that,  if  the  relator  has 
the  rig-ht  he  claims,  it  is  personal  to  himself,  and  can- 
not be  exercised  by  another,  we  reg-ard  as  having-  no 
force.  The  possession  of  the  rig-ht  in  question  would 
be  futile  if  the  possessor  of  it,  through  lack  of  knowl- 


II 


B  CAS]       STOCK  AND  STOCKHOLDERS  375 

State  ex  rel.  Burke  v.  Citizens'  Bank  of  Jenning-s 

edg"e  necessary  to  exercise  it,  were  debarred  the  rig-ht 
of  procuring-  in  his  behalf  the  services  of  one  who  could 
exercise  it."  It  seems  quite  apparent  that  this  rule  is 
entirely  applicable  to  the  case  of  an  executrix,  the  denial 
©f  rigfht  of  inspection  to  whom  would  be  equivalent 
to  an  exclusion  of  the  rig^ht  of  a  deceased  stockholder 
altog-ether. 

On  the  second  proposition  which  counsel  for  the  re- 
spondent submits  with  regard  to  the  sufficiency  of  the 
demand  made  by  the  relatrix  to  entitle  her  to  relief  by 
mmidamus,  we  are  of  opinion  that  the  answer  should 
be  an  affirmative  one  ;  for  it  is  not  denied  that  Dr. 
Burke  was  a  shareholder  of  the  bank,  and  a  depositor 
as  well,  and  it  is  admitted  that,  notwithstanding*  she  is 
executrix  of  his  estate,  her  demand  for  an  examination 
of  the  books  of  the  bank,  and  particularly  those  con- 
taining- his  account,  was  peremptorily  refused.  The 
manag-ement  of  the  bank  seems  to  have  conceded  the 
refusal  by  the  cashier  an  act  of  its  own,  and  hence  the 
case  is  differenced  from  the  Case  of  Leg"endre,  45  La. 
Ann.  669,  12  South.  837.  We  are  of  opinion  that  the 
point  made  in  the  respondent's  answer  to  the 
effect  that  a  by-law  of  the  corporation,  which  ijj'uws^""^" 
declares  that  no  stockholder  or  other  person 
shall  have  the  rig-ht  to  inspect  the  books  of  the  bank 
without  special  authority  from  the  board  of  directors 
cannot  prevail  ag-ainstthe  relatrix.  This  question  was 
considered  by  the  court  in  Cockburn  v.  Bank,  13  La. 
Ann.  289,  and  in  the  course  of  their  opinion  they  said  : 
"Defendant  avers  that  by  the  charter  of  the  Union 
Bank,  and  the  laws  applicable  thereto,  the  entire  man- 
agement of  its  affairs  and  the  control  of  its  books  and 
property  are  confided  to  a  board  of  directors,  who  ad- 
minister the  same,  and  have  the  rig-ht  of  deciding-  when, 
by  whom,  and  for  what  purpose  the  said  books  shall  be 
inspected,  except  in  cases  specially  provided  by  law  ;' 
and  that  petitioner  has  in  law  no  right  to  demand  at  his 
pleasure  the  inspection  of  the  books,"  etc.  "If  the 
board  of  directors  have  the  exclusive  rigfht  alleg-ed  to 
exist  in  them,  they  must  derive  the  power  and  prerog-- 
ative  from  the  free    bankinir   laws  of  the    state    or  the 


376  STOCK  AND  STOCKHOLDERS  [VOL  I 

State  e.v  rel.  Burke  v.  Citizens'  Bank  of  Jennings 

charter.  *  *  *  Defendant  has  not,  however,  called 
our  attention  to  any  act  of  the  leg-islature,  to  any  part 
of  the  charter  of  the  bank,  or  to  any  of  its  rules  or  by- 
laws which  confer  such  exclusive  authority  upon  the 
board  of  directors,  and  we  are  not  aware  of  the  grant 
of  any  such  prerog-ative  exclusively  to  the  board  of 
directors.  A  stockholder  in  a  corporation  possesses 
all  his  individual  rights,  except  so  far  as  he  is  deprived 
of  them  b}^  the  charter  or  the  lazu  of  the  land.  As  long, 
then,  as  the  charter,  or  the  rules  and  by-laws  passed 
in  conformit}^  thereto,  ami  the  Iai,\  do  not  restrict  his 
individual  rights,  he  possesses  them  in  full,  and  can 
demand  to  exercise  them.  It  cannot  be  denied  that  it 
is  the  right  of  every  one  to  see  that  his  property  is 
well  managed,  and  to  have  access  to  the  proper  sources 
of  knowledge  in  this  respect."  (Our  italics.)  Taking 
that  opinion  as  our  guide,  it  is  evident  that  a  b3'-law, 
of  itself,  is  not  sufficient  to  vest  full  power  in  a  board 
of  directors  to  decide  whether  a  shareholder  ma}^  in- 
spect the  books  of  a  corporation  or  not ;  but,  that  a  b}'- 
law  should  be  thus  authoritative,  it  must  have  the 
sanction  of  the  charter  and  the  general  law.  But,  in 
the  light  afforded  by  the  jurisprudence  interpreting 
the  fundamental  law  in  the  premises,  we  think  both 
the  charter  and  the  law  are  subordinated  thereto. 
Our  examination  of  this  case  has  brought  us  to  the 
same  conclusion  it  did  the  judge  of  the  lower  court. 
Judgment  affirmed. 

On  Application  for  Rehearing. 
(Feb.  20,  1899.) 
Blanchard,  J.  The  court  a  qua  granted  the 
plaintiff's  prayer  for  an  expert  to  assist  her  in  the  ex- 
amination she  desired  to  make  of  the  books  of  the 
bank,  which,  under  the  law,  she  has  the  right  to  in- 
spect. The  plaintiff  had  asked  for  the  appointment 
of  a  particular  person,  named  by  her,  as  such  expert. 
The  defendant  bank,  while  resisting  the  demand  for  an 
inspection  of  its  books  as  herein  sought,  asked  that,  in 
the  event  the  inspection  was  granted,  and  the  court 
thought  it  a  proper  case  for  the  appointment  of  an  ex- 


■I 


B  CAS]  STOCK  AND  STOCKHOLDERS  377 

Notes 

pert  to  assist  plaintiff  in  the  examination,  the  person 
named  by  plaintiff  be  not  appointed,  because  he  was 
inimical  to  the  bank  ;  and  that  some  other  disinterested 
and  unprejudiced  person  be  named  as  such  expert. 
The  c©urt  declined  to  name  the  party  sug-g-ested  by 
plaintiff,  and  appointed  as  expert  W.  H.  Simmons. 
The  costs  of  the  mandamus  proceeding-  were  rig-htly 
adjudg-ed  ag-ainst  defendant  bank,  but  we  do  not  think 
an}^  part  of  the  compensation  which  will  be  due  the 
expert  should  have  been  chargfed  ag-ainst  the  bank. 
The  judg-ment  below  directs  that  such  compensation 
be  paid  jointly  by  plaintiff  aad  defendant. 
As  this  expense  cannot  be  reckoned  any  Expert?"*""'*^ 
part  of  the  costs  of  this  litig^ation,  and  as 
the  examination  is  a  matter  desired  by  plaintiff  alone, 
and  for  her  benefit  alone,  the  compensation  of  the  ex- 
pert should  be  borne  by  her  alone.  In  this  respect 
the  judgement  appealed  from  is  erroneous,  and  it  be- 
comes necessary  to  correct  the  same.  It  is  therefore 
ordered  that  the  former  decree  of  this  court,  herein- 
before handed  down,  be  set  aside,  and  it  is  now  ad- 
judg-ed  and  decreed  that  the  judgement  appealed  from 
be  so  amended  as  to  strike  therefrom  the  award  ag-ainst 
defendant  of  any  part  of  the  compensation  which  will 
become  due  the  expert  appointed  to  assist  plaintiff  in 
"her  examination  of  the  books  of  the  bank,  and  it  is 
directed  that  such  expense  be  borne  by  plaintiff  alone; 
and  that,  as  thus  amended,  the  judgfment  of  the  court 
a  qua  be  affirmed,  costs  of  the  lower  court  to  be  taxed 
ag-ainst  defendant,  those  of  appeal  ag-ainst  plaintiff'  and 
appellee.     Rehearing-  denied. 


NOTES 

ght   of    Stockholder     to    I 
Law 


Right   of    Stockholder     to    Inspect    Corporate    Books — Common 

— iw. — At  common  law  stockholders  have  the  right  to  exr.mine  and 
inspect  the  books  and  records  of  the  corporation  of  which  they  are 
members,  at  all  reasonable  times,  in  order  that  they  may  thereby 
be  informed  of  the  condition  of  the  corporation,  its  purpose  and 
business.  The  doctrine  of  the  law  is  that  the  books  and  papers  of 
an  incorporated  companj-,  although  of  necessitj^  kept  in  the  hands 
of  some  proper  officer  or  agent,  ai'e  the  property-  of  all  the  share- 
holders.    Lewis  V.   Brainerd,  53  Vt.  519  :  Commonwealth  v.  Phrenix 


378  STOCK  AND  STOCKHOLDERS  [VOL,  I 

Notes 

Iron  Co.,  105  Pa.  St.  Ill  ;  Huvler  v.  Cragin  Cattle  Co.,  40  N.  J.  Eq. 
392,  12  Am.  &  Eng.  Corp.  Cas.  159  ;  Rosenfeld  v.  Einstein,  46  N.  J. 
E.~479  ;  People  v.  Throop,  12  Wend.  (N.  Y.)  183  ;  Cockburn  v.  Union 
Bank.  13  La.  Ann.  289  ;  Field  on  Corporation,  ^  118  ;  Angell  &  Ames 
on  Corporation,  J;  681  ;  Cook  on  Stock  and  Stockholders,  >5  311. 

Same — Statutes. — And  this  common  law  right  is  confirmed  \)y 
statute  in  most  of  the  states  of  this  country  and  in  England.  And 
it  has  been  held  that  the  common  law  right  of  inspection  remains, 
althovigh  a  special  statutory  right  is  also  given.  People  v.  Lake 
Shore  &  M.  S.  R.  Co.,  11  Hun  (N.  Y.),  1.  A  state  statute  giving  a 
stockholder  right  to  inspect  the  books  of  a  corporation,  applies  to 
national  banks  located  within  the  state.  Winter?'.  Baldwin.  89  Ala. 
583,  31  Am.  &  Eng.  Corp.  Cas.  406.  And  sections  5240  and  5241, 
Rev.  St.  U.  S.,  providing  for  national  bank  examiners  and  the 
exemption  of  these  corporations  from  all  visitorial  powers  other 
than  those  authorized  by  congress  or  vested  in  courts  of  justice, 
does  not  affect  this  statutory  right  of  the  stockholder.  Winter  v. 
Baldwin,  89  Ala.  583,  31  Am.  &  Eng.  Corp.  Cas.  406. 

Same — Qualifications  of  Rule. — The  stockholders,  directors,  or  in- 
corporators of  a  corporation  or  banking  company  may,  at  proper 
times,  and  for  special  and  proper  purposes,  inspect  and  copy  the 
books  of  the  corporation  or  company.  Rex  v.  Merchant  Tailors' 
Co.,  2  B.  &  Ad.  115,  22  E.  C.  L.  40  ;  hi  re  Burton  and  Saddlers'  Co., 
31  L.  J.  O.  B.  62  ;  Rex  v.  Babb,  3  T.  R.  579  ;  Williams  v.  Prince  of 
Wales  Ins.  Co.,  23  Beav.  338  ;  Hatch  v.  City  Bank,  1  Rob.  (La.)  470  : 
Brouwer  27.  Cotheal,  10  Barb.  (N.  Y.)  216,  5  N.  Y.  562;  Peoples. 
Mott,  1  How.  Pr.  (N.  Y.)  247  ;  People  v.  Cornell,  47  Barb.  (N.  Y.) 
329,  35  How.  Pr.  (N.  Y.)  31  ;  Central  Nat.  Bank  v.  White,  37  N.  Y. 
Sup.  Ct.  297,  70  N.  Y.  220;  Ferry  y.  Williams,  41  N.  J.  L.  332 ; 
Foster  v.  White,  86  Ala.  467  ;  Huyler  v.  Cragin  Cattle  Co.,  40  N.  J. 
Eq.  392,   42  N.  J.  Eq.  139;  Phoenix  Iron  Co.  v.  Com.,  113  Pa.  St.  513. 

Same — By  Agents. — And  such  inspection  may  be  made  through  an 
expert  or  other  agent.  Williams  v.  Prince  of  Wales  Ins.  Co.  23 
Beav.  338  ;  Bonnardet  v.  Taylor,  IJ.  &  H.  386;  Draper  v.  Man- 
chester, etc.,  R.  Co.,  7  Jur.  N.  S.  (pt.  1)  86;  Hide  v.  Holmes,  2  Moll. 
372  ;  Blair  v.  Massey,  L.  R.,  5  Ir.  Eq.  623  ;  In  re  Joint  Stock  Dis- 
count Co.,  36  L.  J.  Eq.  150;  Atty.  Gen.  v.  Whitwood,  40  L-  J.  Ch. 
592  ;  Lindsay  v.  Gladstone,  L-  R.,  9  Eq.  132  ;  State  v.  Bienville  Oil 
Works  Co.,  28  La.  Ann.  304  ;  Foster  v.  White,  86  Ala.  467  ;  Ballin  v. 
Ferst,  55  Ga.  546  ;  But  see  Bartley  v.  Bartley.  1  Drew.  233  ;  Sum- 
merfield  v.  Pritchard,  17  Beav.  9  ;  Draper  v.  Manchester  R.  Co.,  3 
DeG.  F,  &  J.  23  ;  In  re  West  Devon,  etc..  Mine,  27  Ch.  D.  106  ;  Bank 
of  Utica  V.  HilHard,  6  Cow.  (N.  Y.)  62. 

Same — Mandamus. — The  right  of  the  shareholder  to  inspect  the 
books  of  the  company  is  one  which  he  can  enforce  by  mandamus 
in  the  discretion  of  the  court.  Cockburn  v.  Union  Bank,  13  La.  An. 
289  ;  American  R.  Frog.  Co.  v.  Haven,  101  Miss.  398,  3  Am.  Rep 
377;  St.  Luke's  Church  z-.  Slack,  61  Mass.  (1  Cush.)  226  ;  State  z/. 
Goll,  31  N.  J.  L.  (2  Vr.)  285  ;  In  re  Sage  v.  Lake  Shore  &  M.  S.  R. 
Co.,  70  N.  Y.  220  ;  People  v.  Pacific  Mail  Steamship  Co.,  50  Barb. 
(N.  Y.)  280:  People  v.  Mott,  1  How.  (N.  Y.)  Pr.  247  ;  People  v.  Lake 
Shore  <&  M.  S.  R.  Co.,  11  Hun  (N.  Y.),  1;  People  v.  Throop,  12 
Wend.  (N.  Y.)  183  ;  In  re  Sage  v.  Lake  Shore  &  M.  S.  R.  Co.,  70 
N.  Y.  220. 


11 


B  CAS]  TRUST  FUNDS  379 

Midland  Nat.  Bank  of  Kansas  City  v.  Brightwell 


Midland  Nat.  Bank  of  Kansas  City 

V. 

Brightwell. 

(Supreme  Court  of  Missouri,  Feb.  21,  i8gg.) 

Collections — Insolvency — Trust  Funds — Priority.* — The  plaintiff 
bank  sent  items  to  another  bank  for  collection,  and  they  were  col- 
lected by  the  latter  bank  by  charging  the  accounts  of  certain  of  its 
depositors,  with  their  consent,  and  crediting  plaintiff  therewith,  at 
a  time  when  the  collecting  bank  had  no  funds  on  hand,  except  a 
small  amount,  not  a  dollar  of  which  had  been  received  from  the 
depositors  owing  the  collections.  Plaintiff  had  not  received  paj'- 
ment  for  any  portion  of  such  collection  items  when  the  collecting 
bank  became  insolvent  and  assigned.  Held,  that  plaintiff  was  not 
entitled  to  a  preference  over  general  creditors  on  account  of  such 
collections,  it  not  appearing  that  the  assets  in  the  hands  of  the 
assignee  had  been  augmented  thereby. 

Appeal  by  defendant  from  Saline  county  circuit 
court.     Reversed. 

This  cause  was  heard  and  decided  by  the  circuit 
court  of  Saline  county,  on  the  following-  ag-reed  state- 
ment of  facts  :  "State  of  Missouri,  County  of  Saline 
— ss.  :  In  the  Saline  County  Circuit  Court.  Midland 
National  Bank  :•.  R.  T.  Brio-htwell,  Assig-nee  Slater 
Saving's  Bank.  It  is  hereby  stipulated  and  agreed 
by  and  between  the  parties  hereto  that  the  facts  in  this 
case  are  as  follows,  and  that  this  ag-reed  statement 
may  be  read  as  evidence  in  this  case  :  It  is  admitted 
that  from  and  after  the  12th  day  of  December,  ISO-l. 
and  for  some  time  prior  thereto,  the  Midland  National 
Bank  was,  and  is  now,  a  banking- corporation,  duly  or- 
g-anized  under  the  laws  of  the  United  States  with  ref- 
erence to  national  banks,  and  doing-  a  g-eneral  banking- 
business  at  Kansas  City,  Missouri  ;  that  on  December 
12,  1894,  the  Midland  National  Bank  sent  collection 
items  to  the  Slater  Saving's  Bank  of  Slater,  Missouri, 

*See  note  at  end  of  case. 


1 


380  TRUST  FUNDS  [VOL,  I 

Midland  Nat.  Bank  of  Kansas  City  v.  Brig-htvvell 

with  instructions  to  remit  in  Kansas  City  exchang-e. 
These  items  ag-g-re^ated  $6,726.44,  a  larg^e  part  of 
which  consisted  of  drafts  drawn  on  the  Citizens'  Stock 
Bank  of  Slater,  Mo.  All  of  these  items  were  collected 
by  the  Slater  Saving's  Bank,  either  by  charg-ing  the 
accounts  of  depositors  against  whom  the  drafts  were 
drawn  after  being-  authorized  to  do  so  by  such  deposi- 
tors, and  crediting-  the  account  of  Midland  National 
Bank,  or  by  a  clearing-  of  the  day's  business  with  the 
Citizens'  Stock  Bank.  In  settlement  of  the  balance 
for  the  da}^  against  it,  the  Citizens'  Stock  Bank  g-ave 
the  Slater  Savings  Bank  its  draft  on  St.  Louis  for 
$4,134.31.  Slater  Savings  Bank  indorsed  this  draft, 
and  forwarded  it,  together  with  its  own  draft,  on  St. 
Louis,  for  $2,650,  to  the  Midland  National  Bank,  on 
account  of  the  collection  items  above  mentioned. 
Neither  of  these  drafts  was  paid,  and  both  the  Slater 
Saving's  Bank  and  Citizens'  Stock  Bank  of  Slater  failed 
December  17,  1894,  and  their  assets  are  in  the  hands 
of  their  respective  assig-nees.  The  Midland  National 
Bank  has  not  received  payment  for  any  portion  of  the 
collection  items  above  mentioned  represented  by  these 
drafts  for  84,134.31  and  S2,650.  At  the  time  "of  the 
failure  of  the  bank,  the  assig'nee  found  in  the  vault  the 
sum  of  $449  in  cash.  And  it  is  also  admitted  that  said 
draft  of  $2,650  was  forwarded  to  plaintiff  on  December 
14,  1894,  and  was  duly  presented  for  payment  on  De- 
cember 17,  1894,  when  payment  was  refused,  and  said 
draft  was  protested  for  nonpa3'ment  ;  and  also  that 
the  said  defendant,  as  assig-nee,  had  in  his  hands  at  the 
date  of  the  trial  sufficient  assets  to  pay  the  draft  of 
$2,650  and  interest  thereon  in  full."  No  other  evi- 
dence was  offered  at  the  trial.  Thereupon  the  defend- 
ant prayed  the  court  to  declare  the  law  to  be  "that, 
under  the  ag-reed  statement  of  facts  herein,  plaintiff  is 
not  entitled  to  charge  the  above  check  of  $2,650  as  a 
trust  fund  against  the  Slater  Savings  Bank,  and  that 
the  plaintiff  is  not  entitled  to  a  preference  in  its  favor 
over  the  g-eneral  creditors  of  the  Slater  Savings  Bank, 
but  that  the  said   sum   of   $2,650  may  be  allowed  as  a 


il 


B  CAS]  TRUST  FUNDS  381 

Midland  Nat.  Bank  of  Kansas  City  v.  Brightwell 

general  claim  aofainst  the  assets  of  said  bank  in  the 
hands  of  the  defendant,  as  assig-nee  thereof," — which 
declaration  of  law  the  court  refused  to  gfive,  and  de- 
fendant duly  excepted  to  said  refusal.  The  circuit 
court  then  rendered  a  decree  that  the  said  sum  of 
$2,650  collected  by  the  Slater  Savingfs  Bank  was  re- 
ceived as  a  trust  fund,  and  was  held  as  such  when  said 
bank  failed,  and  that  the  assig-nee  held  it  in  the  same 
way  ;  and  the  court  further  found  there  were  sufficient 
assets  in  the  hands  of  the  assio^nee  to  satisfy  said 
claim,  and  directed  it  paid,  with  interest.  From  this 
decree  the  assignee  appeals  to  this  court. 

Leslie  Orea?-,A.  F.  Reef  or,  and  Robt.  M.  Reynolds  y 
for  appellant. 

Lathrop,  Morrovc,  Fox  &  Moore,  for  respondent. 

GantT,  p.  J.  (after  stating-  the  facts).  The  ques- 
tion involved  in  this  appeal  upon  the  ag-reed  statement 
of  facts  is  whether  the  Midland  National  Bank  is  a 
preferred  creditor,  or  a  mere  g^eneral  creditor  of  the 
Slater  Saving's  Bank.  Certain  principles  must  be  con- 
sidered as  settled  :  When  a  note  or  draft  is  sent  by  one 
individual  or  bank  to  another  bank  for  collection,  and 
to  remit  the  proceeds  to  the  sender,  the  relation  of 
principal  and  ag-ent  is  created,  and  not  that  of  creditor 
and  debtor.  The  receiving-  bank's  duty  as  a  collecting- 
ag^nt  is  to  present  the  note  or  draft  for  payment,  and, 
unless  a  special  authority  is  otherwise  shown,  to  re- 
ceive in  payment  nothing-  but  money,  or  that  which  by 
common  consent  is  considered  and  treated  as  money. 
Levi  V.  Bank,  5  Dill.  104,  Fed.  Cas.  No.  8,289  ;  2 
Morse,  Banks,  S  567  ;  Libby  v.  Hopkins,  104  U.  S. 
307;  People  t-.  City  Bank,  %  N.  Y.  32.  Having  re- 
ceived the  note  or  draft  for  collection,  it  does  not  owe 
the  amount  thereof  to  the  sender  until  collected  ;  and, 
though  it  may  credit  in  its  books  therefor,  such  a  credit 
may  be  treated  as  provisional  if  the  paper  is  after- 
wards dishonored,  and  it  may  cancel  the  credit.  Arm- 
strong- c'.  Bank  (Ky.)  14  S.  W.  411.  Il^qually  plain  is 
the  law  that  an  assig-nee  for  benefit  of  creditors  takes 


382  TRUST  FUNDS  [vOL  I 

Midland  Nat.  Bank  of  Kansas  City  v.  Brightwell 

no  hig-her  or  better  rig-ht  to  the  assigned  assets  than 
his  assiofnor  possessed  ;  and,  if  the  assignor  stands  in 
a  fiduciary  relation  to  the  assets,  that  relation  is  cast 
upon  the  assignee.  It  is,  moreover,  undeniable  that 
equity  will  follow  a  fund  through  any  number  of  trans- 
mutations, and  preserve  it  for  the  owner  so  long  as  it 
can  be  identified  ;  and  this  court  has  extended  this 
doctrine,  and  held  that  when  a  trustee  or  bailee  wrong- 
fully mixed  trust  money  with  his  own,  so  that  it  can- 
not be  distinguished  as  to  what  portion  is  trust  money, 
and  what  part  private  funds,  equity  \\\\\  follow  the 
money  by  taking  out  of  the  estate  of  the  trustee  or 
bailee,  or  his  insolvent  estate,  the  amount  due  this 
cestui  que  tnisl.  Harrison  v.  Smith,  83  Mo.  210. 
And  in  Stoller  v.  Coates,  88  Mo.  514,  it  was  held  that, 
the  general  assets  of  an  insolvent  bank  having  been 
enlarged  and  increased  by  the  unlawful  conversion  of 
a  trust  fund,  the  bailor  or  ceshd  que  trust  was  entitled 
pro  tanto  to  have  the  amount  of  the  converted  fund  de- 
clared and  enforced  as  a  preferred  demand  against  the 
assigned  estate.  In  going  to  this  length,  unquestion- 
ably this  court  took  a  position  in  advance  of  the  Eng- 
lish chancery  and  most  of  the  states  of  this  Union,  but 
with  the  soundness  of  this  position  we  are  entirely 
satisfied.  The  creditors  of  an  insolvent  person  or 
corporation  are  entitled  to  subject  his  estate  to  their 
demands  ;  but  justice  and  equity  give  them  no  right 
to  appropriate  the  estate  of  another  which  he  holds  in 
trust. 

With  these  acknowledged  principles  as  our  guide, 
the  question  recurs  whether,  upon  the  agreed  facts  of 
this  case,  the  plaintiff  bank  has  established  its  claim 
to  a  preference.  If  it  can  be  said  that  its  collection 
items  augmented  the  assets  of  the  Slater  Bank,  it 
would  seem  that  there  is  no  escape  from  the  conclusion 
that  it  constituted  a  trust  fund.  The  contention  of 
the  plaintiff  is  predicated  upon  this  one  statement : 
"It  appears  that  all  the  items  sent  for  collection  on 
December  12,  1894,  were  collected  by  the  Slater  Sav- 
ings Bank,  partly  by  charging  the  accounts  of  depos- 


B  CAS]  TRUST  FUNDS  383 

Midland  Nat.  Bank  of  Kansas  City  v.  Brightwell 

itors  after  being-  authorized  to  do  so  by  such  depositors, 
and  crediting-  the  Midland  National    Bank    therewith. 
B\^  thus  decreasing-  the  liabilit}^  of   the  Slater   Bank  to 
such  depositors,  the  assets  of  the  bank  were  thereby 
augmented  and  increased  to  the  extent  of  such  collec- 
tion items,  which  items  so  collected  amounted  to  much 
more  than  S2,650," — whereas  the  assig-nee  insists  that 
this  charging-  the  account  of  one  depositor,  and  credit- 
ing- another,  is  a  mere  matter  of  bookkeeping- ;  that  not 
one  dollar  of  money  was  actually  collected  by  the  Slater 
Bank  to  swell  its  assets  ;  that,  by  the  process  resorted 
to,    it  merely   attempted   to  transfer   its   indebtedness 
from  certain  of  its  depositors  to  the   Midland   Bank, 
and  then  g-ave  its   own  exchange,  knowing-  that  it  had 
no  money  to  its  credit  in  St.  Louis  with  which  it  could 
be  honored.     The  ag-reed   facts   fail  to  show  that  the 
Slater  Bank  had  any  funds  on  hand  at  the  time  it  made 
this  exchang-e  on  its  books,  with  which  it  could   have 
met  the  checks  of  the   depositors  on  whom  the  collec- 
tions were  sent,  except  $449.     In  other   words,  if  the 
Slater  Bank   had  received  these  collections  on  parties 
who  were  not  its  depositors,  it  is   clear   it   would   not 
have  owed   the  amount  thereof  to    the  Midland  Bank 
until  they  were  collected  ;  and  even  had  it,  in  anticipa- 
tion of  such  collection,  credited  the  Midland  Bank  with 
the  sum   thereof,  no   principle  of   law  or  equity  would 
have  precluded  it  from  canceling-  such   credit  because 
in  fact  it  had   not   received  the  money.     In  this  case  it 
did  not  receive  any  money,  and  there  was  no  aug-men- 
tatioM  of  its  assets,  and  the  ag-reed   statement  shows 
no  funds  on   hand  at  the  time  of  the  book  entries,  ex- 
cept $449,  not  a  dollar  of  which  is  shovvn  to  have  been 
received  from  the   depositors  owing-  the  several  collec- 
tions.    When   this  court   has   spoken  of  assets   being- 
increased  by  the   reception  of  a  trust  fund   heretofore, 
it  clearly  meant  actual  assets,  not  the  mere   jugfgling- 
•of  accounts,  whereby  debts  due  depositors  were  trans- 
ferred to  become  a  debt  due  a  correspondent  who  sent 
collections.       We  are    not  disposed  to   hold   that   the 
mere  canceling-  of  a  liability  to  one  debtor,  and   the 


384  TRUST  FUNDS  [vOIv  1 

Midland  Nat.  Bank  of  Kansas  City  v.  Brig-litwell 

transferring'  it  to  another  on  the  same  books,  is  an 
actual  increase  of  assets.  For  these  transfers  to  have 
such  an  effect,  there  must  have  been  funds  in  the  bank 
upon  which  such  transfers  could  have  operated.  The 
transfer  of  a  mere  naked  liability  to  one  creditor  tO' 
another  on  the  bank  books  added  not  a  dollar  to  the 
Slater  Bank's  assets.  When  the  transaction  was  fin- 
ished, it  was  a  debtor  in  the  same  amount,  but  to  a 
different  person,  in  a  different  capacity,  and  had  not 
received  an  additional  dollar  whereby  the  dividends  of 
the  other  creditors  would  be  enhirg'ed. 

Upon  the  arg-ument,  we  were  inclined  to  the  view 
that  plaintiff  had  probably  shown  itself  entitled  to  a 
preference,  but  upon  more  mature  consideration  we 
see  no  reason  \vhy  plaintiff  should  be  preferred  to 
other  creditors  of  this  bank.  The  doctrine  invoked 
rests  upon  the  fact  that  the  trust  fund  has  gone  to 
swell  the  assets  of  the  insolvent  bank,  while  in  this 
case  no  inference  can  be  drawn  that  the  assets  in  the 
hands  of  the  receiver  were  the  product  of  the  collec- 
tions sent  by  plaintiff,  but  the  contrary  plainly  appears. 
The  bank  was  hopelessly  insolvent,  and  received  not 
a  dollar  of  new  assets.  Justice  and  equity  will  only 
be  conserved  in  this  case  by  distributing-  the  assets 
pa)'/  passi/,  and  by  denying  plaintiff  the  preference  it 
seeks.     The  judg-ment  of  the  circuit  court  is  reversed. 

Sherwood  and  Burgess,  JJ.,  concur. 


NOTE. 

Insolvency  — Right  of  Cestui  Que  Trust  to  Priority  of  Payment  out 
of  Assets.— In  McLeod  v.  Evans,  66  Wis.  401,  57  Am.  Rep.  287,  the 
plaintiff  had  left  with  his  banker,  H.,  for  collection,  a  draft  upon  a 
New  York  bank.  H.  sent  the  draft  to  a  Chicag-o  bank  and  received 
credit  for  the  amount,  and  afterward  made  drafts  upon  such  bank, 
which  were  cashed.  Before  payment  to  the  plaintiff,  H.  made  an 
assignment  for  the  benefit  of  his  creditors.  At  that  time,  nothing- 
was  due  him  from  the  Chicago  bank.  It  was  held  that  the  proceeds 
of  the  draft  were  a  trust  fund  in  the  hands  of  H.,  and  that,  as  against 
other  creditors,  the  plaintiff  might  enforce  full  payment  from  the 
a-ssets  in  the  hands  of  the  assignee,  although  the  trust  fund  could 
not  be  traced  to  any  specific  property. 


B  CASj  TRUST  FUNDS  385 

Beard  v.  Independent  Dist.  of  Pella  City 

But  in  In  re  Calvin  v.  Gleason,  105  N.  Y.  256,  it  was  held  that  a 
trust  creditor  is  not  entitled  to  preference  over  genereral  creditors 
of  an  insolvent,  merely  on  the  ground  of  the  nature  of  the  claim  ; 
and  that  to  authorize  such  a  preference,  some  specific,  recognized 
equity  founded  on  some  agreement  or  relation  of  the  debt  to  the 
assigned  property, must  be  shown, which  entitles  the  claim, according- 
to  equitable  principles,  to  preferential  payment.  And  this  doctrine 
is  supported  by  the  following  cases:  Atkinson  v.  Rochester  Print- 
ing Co.,  114  N.  Y.  168  ;  Holmes  v.  Gilman,  138  N.  Y.  369  ;  Lathrop  v. 
Bampton,  31  Cal.  17,  89  Am.  Dec.  141  ;  Price  v.  Ralston,  2  Dall.  (U. 
S.)  60;  School  Trustees  v.  Kirwin,  25  111.  63;  Union  Nat.  Bank  v. 
Goetz,  138  111.  127;  Weatherell  v.  O'Brien,  140  111.  145,  33  Am.  St. 
Rep.  221  ;  Goodell  v.  Buck,  67  Me.  514  ;  Portland,  etc.,  Steamboat 
Co.  V.  Locke,  73  Me.  370;  Mutual  Accident  Assoc,  v.  Jacobs,  141  111. 
261,  33  Am.  St.  Rep.  302  ;  Mills  v.  Post,  7  Mo.  App.  519  ;  Duguid 
y.  Edwards,  32  How.  Pr.  (N.  Y.  Supreme  Ct.)  254.  Thompson's 
Appeal,  22  Pa.  St.  16;  Illinois  Trust,  etc..  Bank  v.  First  Nat.  Bank,  15 
Fed.  Rep.  858  ;  Illinois  Trust,  etc.,  Bank  v.  Smith,  21  Blatchf.  (U. 
S.)  275;  Philadelphia  Nat.  Bank  v.  Dowd,  38  Fed.  Rep.  172;  ^tna 
Powder  Co.  v.  Hildebrand,  Indiana  Super.  Ct.,  decided  April  I7th, 
1894. 


Beard 

V, 

Independent  Dist.  op  Pella  City. 

{Circuit  Court  of  Appeals,  Eighth  Circuit,  July  2,  i8g8.) 

Decisions  of  State  Courts — Uniformity — School  Funds  in  Insol- 
vent National  Bank. — Where  the  treasurer  of  a  school  district  has 
illegally  deposited  its  funds  in  a  national  bank,  and  they  have  be- 
come intermingled  with  the  general  funds  of  the  bank,  after  the 
bank  has  been  declared  insolvent,  no  right  is  conferred  upon  the 
district  by  the  statutes  of  Iowa  to  priority  of  payment  out  of  such 
general  funds  over  other  creditors,  and  a  decision  to  such  effect  by 
the  supreme  court  of  the  state  would  not  be  binding  upon  a  federal 
court. 

Same — Priority.* — In  order  to  establish  its  right  to  such  priority 
of  payment  out  of  the  cash  fund,  in  the  hands  of  the  bank's  receiver, 
the  school  district  must  prove  that  such  cash  has  been  augmented 
by  the  addition  thereto  of  trust  funds  belonging  to  it,  and  wrong- 
fully deposited  by  its  treasurer,  and  this  is  not  shown  by  evidence  to 
the  eifect  that  the  amount  claimed  was  not  actual  cash  deposited, 
but  was  represented  by  checks  drawn  on  the  bank  itself  against  an 
ordinary  account,  the  amount  of  each  being^  charged  on  the  bank's 
books  against  the  drawer,  and  then  entered  to  the  credit  of  the 
treasurer  of  the  school  district. 

*See  Midland  Nat.  Bank  v.  Brightwell  (Mo.),  ante  ajid  note. 

B  CAS— 25 


386  TRUST  FUNDS  [vOL,  I 

Beard  z'.  Independent  Dist.  of  Pella  City 

Appeal  by  receiver  from  the  Circuit  Court  of  the 
United  States  for  the  Southern  District  of  Iowa.  Re- 
versed. 

A.  B.  CuuiDiiiis,  for  appellant. 

P,  H.  BoHsquct,  I.  M.  Earle,  and  s\  F.  Proiity,  for 
appellee. 

Before  Sanborn,  and  Thayer,  Circuit  Judg-es,  and 
Shiras,  District  Judg-e. 

Shiras,  District  Judg-e.  From  the  record  in  this 
case  it  appears  that  for  some  years  prior  to  June,  1895, 
the  First  National  Bank  of  Pella,  a  corporation  created 
,      ■    ,  under  the  provisions  of  the  act  of  congress 

€as0  Stiitsd*  • 

known  as  the  "National  Bank  Act,"  carried 
on  at  Pella,  Iowa,  a  banking-  business  until  about  June  1, 
1895,  when  it  was  declared  to  be  insolvent,  and  R.  R. 
Beard,  the  appellant,  was  duly  appointed  receiver 
thereof  by  the  comptroller  of  the  currency.  It  further 
appears  that  for  years  previous  to  the  appointment  of 
the  receiver  the  treasurer  of  the  independent  school 
district  of  Pella  city  had  been  in  the  habit  of  deposit- 
ing-the  funds  of  the  school  district  in  the  named  bank; 
the  account  on  the  books  of  the  bank  being-  headed, 
"Treasurer  of  Independent  School  District."  The 
moneys  thus  deposited  were  not  received  by  the  bank 
as  a  special  deposit,  but  were  treated  the  same  as  the 
moneys  paid  in  by  other  depositors  ;  being- intermin- 
g-led  with  the  g-eneral  funds  of  the  bank.  When  the 
bank  failed,  and  was  placed  in  the  hands  of  a  receiver, 
the  account  showed  a  balance  due  to  the  treasurer  of 
the  school  district  of  $4,676.25  ;  and  thereupon  the  in- 
dependent district  brougfht  this  proceeding-  in  equity 
for  the  purpose  of  compelling-  the  receiver  to  recog-- 
nize  the  amount  as  a  trust  fund  belong-ing-  to  the  dis- 
trict, and  to  pay  the  same  out  of  the  moneys  in  his 
hands  before  paying-  any  dividends  to  the  creditors  of 
the  bank,  —it  appearing-  that  the  cash  assets  of  the 
bank  coming-  into  his  hands  on  June  1st  amounted  to 
$8,729.93.     Upon  the  hearing-  in  the  circuit  court  it  was 


i 


B  CAS]  TRUST  FUNDS  387 

Beard  z'.  Independent  Dist.  of  Pella  City 

decreed  that  complainant  was  entitled  to  the  relief 
souofht,  and  that  the  receiver  must  pay  the  amount  due 
the  independent  district  before  making-  a  dividend  to 
the  other  creditors  :  and  the  receiver  now  seeks  a  rever- 
sal of  the  decree  thus  entered.  The  gfrounds  for  the 
conclusion  reached  by  the  trial  court  are  very  fully  and 
ably  set  out  in  the  opinion  handed  down,  and  reported 
in  83  Fed.  5,  in  the  course  of  which  the  leading-  cases 
upon  the  question  of  the  rig-ht  to  follow  and  recover 
trust  funds  are  cited  and  commented  on  ;  and  the  con- 
clusion is  reached  that  there  exists  a  conflict  between 
the  rulings  of  the  supreme  court  of  Iowa  and  the  cur- 
rent of  authority  in  the  courts  of  other  states  and  of 
the  United  States,  and  that,  if  free  to  view  the  ques- 
tion on  its  merits,  the  ruling  would  be  ag-ainst  the 
right  to  a  preferential  claim  existing-  in  the  school  dis- 
trict, but,  in  deference  to  the  rulings  of  the  supreme 
court  of  Iowa,  the  court  would  hold  the  right  to  a  pref- 
erence to  be  established. 

The  only  provision  of  the  statutes  of  Iowa  which  is 
involved  in  this  case  is  section  1747  of  the  Code  of  Iowa 
of  1873,  which  enacts  that : 

"The  treasurer  shall  hold  all  moneys  n^cisions «r  stat* 
belonging    to  the  district  and    pay  out   the  ity-schix.i 

Fqii(1!<  ill  Insolvf^nt 

same  on  the  order  of  the  president,  counter-  vatinnai  B»nk. 
signed    by  the  secretary,    and    shall   keep  a 
correct  account  of  all   expenses  and   receipts  in  a  book 
provided  for  the  purpose." 

Construing  this  section,  the  supreme  court  of  Iowa 
holds  that  under  its  provisions  the  treasurer  of  a  school 
district  holds  the  mone}^  of  the  district  as  a  trustee  ; 
that  he  is  not  authorized  to  deposit  the  same  in  a  bank, 
and  by  so  doing  the  character  of  the  fund  is  not  changed, 
and  the  right  exists  in  the  district  to  follow  this  trust 
fund  and  assert  title  thereto.  District  Tp.  z-.  Morton,' 
37  Iowa,  551  ;  District  Tp.  r.  Smith,  39,  Iowa,  10  ;' 
District  Tp.  V.  Hardinbrook,  40  Iowa,  130  ;  Independ- 
ent Dist.  V.  King,  80  Iowa,  497,  45  N.  W.  908.  The 
statute  does  not  deal  with  the  question  when,  and  un- 
der  what  circumstances,  a  right  to  a  trust  fund  can  be 


388  TRUST  FUNDS  [VOL,  I 

Beard  v.  Independent  Dist.  of  Pella  City 

successfully  asserted  against  the  rig-hts  of  third  par- 
ties. All  that  is  established  by  the  construction  of  the 
statute  by  the  state  supreme  court  is  that  under  its  pro- 
visions a  district  treasurer  holds  the  school  funds  as  a 
trustee,  and  that  he  has  no  legal  rig-ht  to  deposit  the 
funds  in  a  bank  ;  but  the  statute  does  not  undertake 
to  declare  that  if  the  money  is  thus  deposited,  and  is 
interming-led  with  the  g-eneral  funds  of  the  bank,  the 
right  of  the  school  district  to  payment  out  of  the  gen- 
eral fund  is  paramount  to  the  rights  of  all  other  credit- 
ors. If  such  rig-ht  exists,  it  is  not  created  by  the  stat- 
ute, but  is  based  upon  the  g-eneral  principles  of  law  and 
equity  applicable  to  the  circumstances  :  and  the  ruling-s 
of  the  supreme  court  of  Iowa  are  not  conclusive  upon 
the  latter  question,  nor  can  it  be  rightfully  said  that 
they  constitute  a  rule  of  property  which  other  courts 
are  bound  to  follow  ;  and  while  we  concur  with 
the  trial  court  in  the  general  views  expressed,  touching" 
the  desirability  of  avoiding-  conflicting"  decisions 
between  the  state  and  federal  courts,  we  cannot  ag-ree 
with  the  learned  judge  below  in  holding"  that  this  consid- 
eration requires  a  decision  of  the  question  involved 
in  this  case  in  accordance  with  the  rulings  of  the 
supreme  court  of  Iowa,  if  the  same  are  not  in 
accord  with  the  rules  laid  down  by  the  su- 
preme court  of  the  United  States,  or  established 
by  the  decided  weight  of  authority  in  the  cases  decided 
by  the  courts  of  other  states.  We  must  not  lose  sight 
of  the  character  of  this  proceeding.  The  First  National 
Bank  of  Pella  was  created  under  the  laws  of  the 
United  States ;  and  its  powers,  rights,  duties,  and 
obligations,  so  far  as  they  are  dependent  upon  statu- 
tory enactment,  are  derived  from  the  acts  of  congress, 
and  not  from  the  statutes  of  Iowa.  Becoming  insol- 
vent, the  bank  was  put  into  liquidation  under  the 
provisions  of  the  act  of  congress,  and  the  receiver  was 
appointed  by  the  comptroller  of  the  currency  ;  and, 
under  the  authority  conferred  on  him  by  the  statutes 
of  the  United  States,  he  has  taken  possession  of  the 
assets  of  the  bank,  and  in  the  distribution  thereof  he  is 


B  CAS]  TRUST  FUNDS  389 

Beard  z>.  Independent  Dist.  of  Pella  City 

controlled  by  the  laws  of  the  United  States.  The 
present  bill  was  filed  by  the  complainant  ag-ainst  the 
receiver  in  his  official  capacity,  and  for  the  purpose  of 
establishing-  a  preferential  claim  on  the  assets  of  the 
bank  in  his  hands,  in  favor  of  complainant ;  and  the 
real  question  is  whether  the  receiver  is  bound  to  obey 
the  law  as  laid  down  by  the  supreme  court  of  the 
United  States,  or  by  the  supreme  court  of  Iowa,  upon 
the  point  at  issue,  assuming-  for  the  moment  that  these 
courts  are  at  variance  thereon.  The  arg^ument  in  favor 
of  uniformity  of  decision,  upon  which  reliance  was 
placed  by  the  trial  court,  makes  in  favor  of  uniformity 
of  ruling-  among-  the  courts  which  -may  be  called  upon 
to  direct  the  distribution  of  the  assets  of  insolvent  na- 
tional banks,  wh'ich  can  only  be  secured  by  following- 
in  all  cases  the  rule  laid  down  by  the  supreme  court  of 
the  United  States.  The  question  for  decision  is,  what 
rule  should  be  followed  by  a  receiver  of  a  national  bank 
in  distributing-  the  assets  of  the  bank,  which  have  come 
into  his  hands  under  the  provisions  of  the  laws  of  the 
United  States,  in  cases  wherein  it  appears  that  trust 
funds  have  been  received  by  the  bank  in  the  course  of 
its  business?  The  g-eneral  question  of  the  rig-ht  to 
follow  trust  funds  was  fully  considered  by  Mr. 
Justice  Bradley  in  Frelinghuysen  z'.  Nugfent,  36 
Fed.  229,  and  the  conclusion  reached  was  stated  as 
follows: 

"Formerly  the  equitable  rig-ht  of  following-  mis- 
applied money  or  property,  in  the  hands  of  the  part}^ 
receiving-  it,  depended  upon  the  ability  of  identifying-  it; 
the  equity  attaching-  only  to  the  very  property  mis- 
applied. This  rig-ht  was  first  extended  to  the  proceeds 
of  the  property,  namely,  to  that  which  was  procured 
in  place  of  it  by  exchang-e,  purchase  or  sale.  But  if  it 
became  confused  with  other  property  of  the  same  kind, 
so  as  not  to  be  distinguishable,  without  any  fault  on 
the  part  of  the  possessor,  the  equity  was  lost.  Finally, 
however,  it  was  held,  as  the  better  doctrine,  that  con- 
fusion does  not  destroy  the  equity  entirely,  but  converts 
it   into  a  charg-e   upon  the  entire  mass,  g-iving-  to  the 


390  TRUST  FUNDS  [vOL  I 

Beard  v.  Independent  Dist.  of  Pella  City 

party  injured  by  the  unlawful  diversion  a  priority  of 
riofht  over  other  creditors  of  the  possessor." 

Counsel  for  appellant  and  appellee  concede  that  the 
foregoing-  extract  from  the  opinion  of  Mr.  Justice 
Bradley  fairly  states  the  rule  recog-nized  by  the 
supreme  court  of  the  United  States,  v^^hich  in  Peters 
V.  Bane,  133  U.  S.  670,  10  Sup.  Ct.  354,  quoted  the 
same  approviug-ly;  and,  without  further  citation  of  au- 
thorities, we  may  accept  the  same  as  a  succinct  state- 
ment of  the  rule  now  in  force  in  the  courts  of  the  United- 
States. 

It  is  claimed  that  the  supreme  court  of  Iowa  has  ex- 
tended the  rule  as  above  stated,  by  holding-  that  where 
trust  funds  have  been  interming-led  with  the  general 
assets  of  an  insolvent  estate,  thereby  increasing  the 
amount  thereof,  the  person  to  whom  the  trust  funds 
belong-  has  a  preferential  lien,  not  only  upon  the  specific 
fund  into  which  it  was  traced,  but  upon  the  general 
assets  of  the  insolvent  estate;  and,  in  support  of  this 
claim,  reliance  is  placed  on  the  cases  of  Independent 
Dist.  V.  Kin^,  80  Iowa,  498,  45  N.  W.  908,  and  Dist. 
Tp.  of  Eureka  v.  Farmers'  Bank,  88  Iowa,  194,  55  N. 
W.  342.  It  cannot  be  questioned  that  the  g-eneral 
lang-uag-e  found  in  the  opinion  in  the  former  case  gives 
support  to  the  contention  that  it  was  intended  to  lay 
down  the  broad  proposition  that,  as  ag-ainst  the  general 
creditors,  the  owner  of  a  trust  fund  passing-  into  the 
hands  of  another  who  becomes  insolvent,  will  have  a 
preferential  lien  upon  the  estate  of  the  insolvent;  but 
the  decision  in  the  subsequent  case  of  Dist.  Tp.  of 
E^ureka  v.  Farmers'  Bank,  supra,  clearly  shows  that 
such  is  not  the  doctrine  intended  to  be  enunciated  by 
that  court.  In  the  latter  case  one  Taylor  was  carry- 
ing- on  a  banking-  business  under  the  name  of  the 
Farmers'  Bank  of  Fontanelle.  On  the  10th  day 
of  December,  1890,  the  bank  being-  insolvent,  Tay- 
lor made  a  g-eneral  assignment  for  the  benefit  of 
creditors.  It  appeared  that  the  treasurer  of  the  school 
district  for  some  years  had  deposited  the  money  of  the 
district  in  Tavlor's  Bank;  there  being-  to  his  credit^ 


B  CAS]  TRUST  FUNDS  391 

Beard  v.  Independent  Dist.  of  Pella  City 

when  the  assig^nment  was  made,  the  sum  of  $2,303. 
The  school  district  broug-ht  suit  in  the  district  court  of 
Adair  county,  asking-  that  the  amount  be  declared  to  be 
a  trust  fund,  and  be  decreed  to  be  a  preferred  claim 
against  the  property  transferred  to  the  assignee  of  the 
owner  of  the  bank  by  the  deed  of  assignment,  and  the 
district  court  entered  a  decree  providing-  for  the  pay- 
ment of  the  trust  money  out  of  any  funds  which  should 
come  into  the  hands  of  the  assig^nee.  Upon  appeal  the 
supreme  court  reversed  the  decree  in  this  particular 
because  it  appeared  that  the  deed  of  assignment  con- 
veyed to  the  assig-nee  real  property,  to  the  acquisition 
of  which  the  money  of  the  school  district  had  not  con- 
tributed, and  in  the  course  of  the  opinion  it  is  said: 

"In  Independent  Dist.  v.  King-,  80  Iowa,  498,  45  N. 
W.  908, — a  case  in  many  respects  like  this, — the  iden- 
tical money  deposited  was  not  shown  to  have  been 
delivered  to  the  assig-nee  ;  and  it  was  said  that,  if 
a  trust  for  the  amounts  deposited  were  established,  'it 
must  be  on  the  ground  that  the  deposits  must  be  held  to 
have  increased  the  estate  of  the  insolvents,  and  that  the 
balance  due  is  represented  by  an  increase  now  in  the 
hands  of  the  assig-nee.'  *  *  *  It  is  insisted,  how- 
ever, that  the  trust  fund  has  been  traced  into  the  estate 
of  the  insolvent,  which  is  in  the  hands  of  the  assig-nee. 
We  do  not  think  it  is  necessary  to  trace  the  deposit 
into  any  specific  property  in  the  hands  of  the  assignee, 
in  order  to  establish  a  trust,  but  it  should  be  shown — - 
presumptively,  at  least — that  the  estate  in  his  hands 
has  been  augmented  by  the  trust  fund.  The  equities 
of  plaintiff,  as  ag-ainst  property  to  which  its  money 
contributed  nothing-,  directly  or  indirectly,  are  no 
greater  than  those  of  the  g-eneral  creditor." 

Thus  we  have  in  this  case  a  construction  of  the  opin- 
ion g-iven  in  the  earlier  case  of  Independent  Dist.  t-. 
King- ;  and  it  is  made  clear,  beyond  question,  that  the 
supreme  court  of  Iowa  does  not  hold  the  rule  that  a 
trust  fund  may  be  declared  to  be  a  perferential  lien 
upon  the  entire  estate  of  an  insolvent,  into  whose  hands 
the  trust   fund  may  have  come,  but  such  preferential 


392  TRUST  FUNDS  [VOI,  I 

Beard  v.  Independent  Dist.  of  Pella  City 

lien  will  be  held  to  exist  against  any  fund  or  property 
coming-  into  the  hands  of  an  assignee,  the  amount  or 
value  of  which  has  been  augmented  by  reason  of  the 
trust  fund  coming  into  possession  of  the  assignor.  It 
is  diflGcult  to  see  wherein  the  rule  thus  enunciated  and 
applied  by  the  supreme  court  of  Iowa  diifers  from  that 
recognized  by  Mr.  Justice  Bradley  in  Frelinghuy- 
sen  f.  Nugent,  supra,  and  approved  by  the  supreme 
court,  to  the  effect  that  confusion  with  other  like 
property,  as  by  intermingling  money  in  a  common 
fund,  does  not  destroy  the  equity,  but  converts  it  into 
a  charge  upon  the  entire  mass  with  which  the  trust 
fund  has  been  confused.  The  foundation  of  the  right 
on  part  of  the  owner  of  a  trust  fund  to  a  preference 
over  general  creditors  in  payment  out  of  a  fund  or  estate 
that  has  passed  to  the  assignee  or  receiver  of  an  in- 
solvent person  or  corporation  is,  that  the  trust  fund 
has  been  wrongfully  confused  or  intermingled  with 
the  property  of  the  insolvent,  or  has  been  used  to 
increase  the  value  of  property,  thereby  increasing  the 
amount  or  value  of  the  funds  or  estate  passing  into 
possession  of  the  assignee  or  receiver;  that,  if  this 
intermingling  had  not  taken  place,  the  fund  passing 
to  the  receiver  would  have  been  so  much  less;  that  the 
creditors  have  only  the  right  to  subject  the  property 
of  the  debtor  to  the  payment  of  their  claims,  and 
therefore  the  creditors  cannot  complain  if  the  total 
fund  coming  into  the  hands  of  the  receiver  is  reduced 
by  the  amount  necessary  to  make  good  to  the  owner  of 
the  trust  fund  the  sum  which  was  wrongfully  used  in 
augmenting  the  fund  or  property  passing  to  the 
receiver.  Unless  it  appears  that  the  fund  or  estate 
coming  into  possession  of  the  receiver  has  been  aug- 
mented or  benefited  bj'^  the  w^rongful  use  of  the  trust 
fund,  no  reason  exists  for  giving  the  owner  of  the 
trust  fund  a  preference  over  the  general  creditors, 
and  this  we  understand  to  be  the  doctrine  recognized 
by  the  supreme  court  of  Iowa  and  the  supreme  court 
of  the  United  States  alike. 

In-  the   bill  filed  in   this  case  it  is  averred  that  when 


B  CAS]  TRUST  FUNDS  393 

Beard  v.  Independent  Dist.  of  Pella  City 

the  bank  closed  its  doors  it  had  on  hand  cash  to  the 
amount  of  $8,000,  which  passed  into  possession  of  the 
receiver;  it  beingf  further  averred  that  the  „  „ .  .. 
trust  money  belono-ing'  to  the  school  district, 
and  amounting-  to  $4,676,  formed  part  of  this  cash 
fund.  Upon  this  question  of  fact  the  rights  of  the 
complainant  depend.  If  this  fund,  coming  into  pos- 
session of  the  receiver  as  part  of  the  assets  of  the 
insolvent  bank,  includes  the  money  belonging  to  the 
school  district,  then  the  district  is  entitled  to  a  pref- 
erence in  payment  therefrom  over  the  creditors  of  the 
bank;  but,  unless  it  appears  that  this  fund  does 
include  such  trust  fund,  the  right  to  a  preference  does 
not  exist.  The  evidence  shows  that  when  the  bank 
closed  its  doors,  on  June  1,  1895,  all  the  money 
credited  on  account  to  the  independent  district  had 
been  drawn  out,  and  the  balance  of  $4,676,  claimed  to 
be  due,  grows  out  of  two  credits  entered  on  the 
account, — one  for  $614,  under  date  of  May  6,  1895, 
and  one  for  $4,340,  under  date  of  May  13,  1895;  and  it 
is  admitted  that  these  entries  do  not  represent  cash 
then  actually  paid  into  the  bank,  but  represent  checks 
given  on  the  bank  itself,  the  amount  of  each  being 
charged  on  the  books  of  the  bank  against  the  drawer 
of  the  check,  and  then  entered  to  the  credit  of  the 
treasurer  of  the  school  district.  The  checlc  for  $4,340 
was  drawn  by  the  treasurer  of  Marion  county  in  favor 
of  the  treasurer  of  the  school  district,  and  represented 
taxes  collected  for  school  purposes  for  the  benefit  of 
the  independent  district  of  Pella.  The  account  kept 
with  the  treasurer  of  the  independent  district,  on  the 
books  of  the  bank,  shows  that  money  was  drawn  out 
of  the  bank  from  time  to  time  for  the  use  and  benefit  of 
the  school  district;  and  it  further  appears  that  were  it 
not  for  the  credit  given  by  reason  of  the  two  checks 
drawn  May  6th  and  May  13th,  and  aggregating  $4,954, 
the  account  would  have  been  overdrawn,  and  the 
treasurer  of  the  district  would  have  been  in  debt  to  the 
bank  in  the  sum  of  $514.  It  thus  appears  that  the 
balance  of  $4,676  now  claimed  by  the  school  district  is 


394  TRUST  FUNDS  [VOL  I 

Beard  v.  Independent  Dist.  of  Pella  City 

not  composed  of  money  actuall}'^  paid  iuto  the  bank  on 
May  6th  and  13th,  whereby  the  cash  assets  of  the  bank 
were  increased  to  that  extent,  but  this  balance  is  made 
to  appear  to  be  due  to  the  sch6)ol  district  by  entries 
upon  the  books  which  neither  increased  nor  diminished 
the  cash  held  by  the  bank.  That  this  is  true  will 
appear  from  an  examination  of  the  daily  balance  book 
of  the  bank,  which  is  in  evidence.  This  shows  that 
on  the  11th  of  May  the  total  cash  held  by  the  bank 
amounted  to  $7,949,  and  the  amount  then  to  the  credit 
of  the  school  district  was  $707.  May  12,  1895,  beingf 
Sunday,  no  entry  appears  for  that  day.  On  May  13th 
the  cash  balance  was  $8,436,  or  an  increase  of  $+87 
over  the  amount  on  hand  on  Saturday,  May  11th. 
The  amount  to  the  credit  of  the  school  district  on  the 
13th  was  $5,047,  or  an  increase  over  the  amount  on 
Saturday,  May  11th,  of  $4,340,— just  the  amount 
of  the  check  drawn  by  the  treasurer  of  Marion 
county  on  the  bank,  and  by  it  credited  to  the  account 
of  the  school  district;  but  the  amount  of  cash  held  by 
the  bank  was  not  increased  by  this  amount,  but  remained 
at  just  the  fig^ure  it  would  have  shown  if  this  inter- 
change of  credits  between  the  treasurer  of  Marion 
county  and  the  treasurer  of  the  school  district  had  not 
taken  place.  Under  these  circumstances,  can  it  be 
successfully  maintained  that  the  cash  fund  comino- 
into  the  hands  of  the  receiver  has  been  aug-mented  by 
the  addition  thereto  of  a  trust  fund  belonging- to  the 
school  district,  which  may  be  subtracted  from  the  fund 
without  infring-ing-  on  the  rig-hts  of  the  g-eneral 
creditors?  The  relation  existing-  between  the  bank 
and  the  treasurer  of  Marion  county  was  simply  that  of 
debtor  and  creditor.  In  order  to  pay  the  amount  of 
taxes  due  to  the  school  district,  the  treasurer  of  the 
county  drew  his  check  on  the  bank  for  the  sum  of  $4,340,. 
and  delivered  it  to  the  treasurer  of  the  school  district. 
The  fund  on  which  the  check  was  drawn  was  not  a. 
trust  fund,  and  the  delivery  of  the  check  to  the 
treasurer  of  the  school  district,  did  not  chang-e  the 
character   of  the   account  ag-ainst  which  it  was  drawn. 


B  CAS]  TRUST  FUNDS  •  395 

Beard  v.  Independent  Dist.  of  Pella  City 

If,  after  the  acceptance  of  the  check  by  the  treasurer  of 
the  school  district,  but  before  its  presentation,  the 
bank  had  failed  and  closed  its  doors,  it  could  not  be 
claimed  that  the  bank  held  the  sum  in  trust  for  any 
one.  The  only  oblig-ation  resting-  on  the  bank  was  to 
pay  the  check  on  presentation,  and,  if  not  paid,  the 
bank  would  be  indebted  for  the  amount,  not  as  a 
holder  of  a  trust  fund,  but  as  an  ordinary  debtor.  It 
is  claimed  in  argument  that  the  court  must  treat  the 
case  just  as  thoug-h  the  treasurer  of  the  school  district 
had  presented  the  check,  had  obtained  the  money 
thereon,  and  had  then  deposited  the  money  in  the 
bank  as  the  money  of  the  school  district,  but  this  was 
not  in  fact  done;  and  as  atrainst  the  creditors,  whose 
money  in  fact  created  the  cash  amount  coming*  into  the 
hands  of  the  receiver,  why  should  fiction  be  resorted 
to  in  order  to  sustain  a  preference  on  behalf  of  the 
school  district  to  payment  out  of  a  fund  not  aug-mented 
in  fact  by  any  sum  belongfingf  to  the  district? 

The  object  of  the  bill  filed  in  this  case  is  to  obtain  a 
preferential  payment  of  the  sum  of  $4,976  out  of  the 
cash  fund  coming-  into  the  hands  of  the  receiver  as  part 
of  the  assets  of  the  bank,  and  the  foundation  of  the 
rig-ht  to  a  preference  is  the  claim  that  this  fund  had 
been  augmented  and  increased  by  the  addition  thereto 
of  a  trust  fund  beloag-ing-  to  the  school  district.  The 
evidence  clearly  shows  that  if  the  treasurer  of  the  school 
district  had  never  deposited  a  cent  in  the  bank,  or  had 
closed  his  account  therewith  on  the  5th  day  of  May, 
1895.  the  sum  of  money  coming-  into  the  hands  of  the 
receiver  on  June  1st  would  have  been  just  the  same 
that  did  in  fact  come  into  his  hands  ;  and  the  evidence 
therefore  does  not  prove  that  the  cash  fund  in  the  hands 
of  the  receiver  has  been  aug-mented  or  increased  by  the 
addition  thereto  of  a  trust  fund  belong-ing-  to  the  school 
district.  If  the  evidence  showed  that  there  had  been 
in  the  hands  of  the  treasurer  of  the  school  district  a 
sum  of  money  which  he  in  fact  placed  in  the  bank  as  an 
addition  to  the  cash  fund  which  subsequently  passed  into 
the  hands  of  the  receiver,  the  school  district  could  make 


396  •  TRUST  FUNDS  [VOL  I 

Beard  v.  Independent  Dist.  of  Pella  City 

claim  to  this  amount  as  a  trust  fund,  without  being-  re- 
quired to  prove  the  methods  by  which  the  money  came 
into  the  hands  of  its  treasurer  ;  but,  as  the  evidence  in 
this  case  clearly  shows  that  the  cash  fund  coming- into 
the  receiver's  hands  does  not  include  any  cash  actually 
paid  into  the  bank  by  the  treasurer  of  the  school  district, 
the  complainant,  in  order  to  shovv^  that  it  has  any  claim 
ag-ainst  the  bank,  is  compelled  to  avail  itself  of  the  ac- 
tion of  its  treasurer  in  accepting  from  the  treasurer  of 
Marion  county  a  check  drawn  on  the  bank,  and  against 
an  ordinary  account,  not  containing  trust  funds,  and  in 
having  the  amount  of  the  check  credited  to  the  treasurer 
of  the  district.  If  the  treasurer  of  the  district  had  pre- 
sented the  check  to  the  bank  for  acceptance,  and  it  had 
been  accepted  or  certified  as  good  b}'  the  bank,  but  be- 
fore payment  the  bank  had  failed,  certainly,  if  the 
school  district  desired  to  avail  itself  of  a  claim  against 
the  bank,  it  could  only  do  so  by  assuming-  the  position 
of  its  treasurer,  which  w^ould  be  that  of  a  creditor  of 
the  bank,  holding  an  accepted  or  certified  check.  It 
certainly  could  not  assert  that  the  accepted  check  had 
become  a  trust  fund,  which  must  be  paid  in  preference 
to  the  debts  due  other  creditors.  By  accepting-  the 
check,  the  bank  would  bind  itself  for  the  payment  of 
the  amount  thereof  ;  and,  in  effect,  that  was  all  that 
was  done  in  this  case,  in  that  when  the  check  was  drawn 
the  amount  thereof  was  credited  up  to  the  account  of 
the  treasurer  of  the  school  district,  and  by  so  doing" 
the  bank  acknowledged  the  check  to  be  g-ood,  and  be- 
came bound  to  pay  the  amount  thereof  when  called  for 
by  the  treasurer  of  the  district.  The  school  district 
can  wholly  ig-nore  all  these  dealings  between  its  treas- 
urer and  the  bank,  and,  under  the  decisions  of  the  su- 
preme court  of  Iowa,  can  hold  its  treasurer  and  his 
sureties  for  the  amount  of  school  funds  coming- under 
his  control  ;  but  when,  as  in  this  case,  the  school  dis- 
trict endeavors  to  establish  a  claim  ag-ainst  the  bank,  it 
oug-ht  not  to  be  allowed  to  avail  itself  of  the  benefit  of 
the  transactions  between  its  treasurers  and  the  bank, 
butavoid  their  oblisrations.     This  case  is  not  one  where- 


I 


B  CAS]  TRUST  FUNDS  397 

Beard  v.  Independent  Dist.  of  Pella  City 

in  it  is  made  to  appear  that  the  school  treasurer  aud  the 
bank  were  in  collusion  to  commit  a  fraud  upon  the  dis- 
trict, and  the  actual  contest  is  between  the  school  dis- 
trict and  the  g-eneral  creditors  of  the  bank.  It  is  open 
to  the  school  district  to  assume  the  position  occupied 
by  its  treasurer,  and,  by  acknowledg-ing-  his  acts,  be- 
come a  creditor  of  the  bank  for  the  balance  shown  to 
be  due  to  the  school  treasurer  ;  but  when  the  district 
attempts  to  avoid  the  position  of  a  creditor,  and  to  as- 
sume that  of  the  owner  of  a  trust  fund,  and  as  such  to 
assert  a  preferential  rijj-ht  to  payment  in  full  out  of  the 
cash  fund  coming-  into  the  hands  of  the  receiver,  to  the 
detriment  of  the  g-eneral  creditors,  it  oug-ht  to  be  held 
to  satisfactory  proof  of  the  fact  upon  which  the  rig-ht 
to  a  preference  rests,  to  wit,  that  the  fund  coming-  into 
the  receiver's  hands  has  been  augmented  and  increased 
by  the  addition  thereto  of  the  trust  money,  not  as  a 
matter  of  inference,  nor  as  a  result  of  mere  entries  on 
books  of  account,  but  because  the  fund  or  property 
against  which  the  preference  is  soug-ht  to  be  enforced 
has  been  in  fact  aug-mented  or  benefited  by  the  addition 
thereto  of  the  trust  fund. 

To  illustrate  the  situation,  let  it  be  assumed  that  on 
the  13th  day  of  Miy,  when  the  check  of  the  treasurer 
of  Marion  county  was  entered  upon  the  books  of  the 
bank  to  the  credit  of  the  treasurer  of  the  district,  there 
was  no  cash  then  in  the  bank.  Certainly  the  drawing 
of  the  check,  and  the  entry  thereof  to  the  credit  of  the 
school  treasurer,  would  not  have  placed  in  the  hands  of 
the  bank  any  cash  whatever  ;  and,  had  the  bank  then 
closed  its  doors,  it  would  be  true  that  the  school  dis- 
trict could  assert,  as  against  the  bank,  that  the  amount 
due  it  was  a  trust  fund,  yet  it  would  be  but  a  barren 
claim,  because  there  would  be  no  fund  in  the  hands  of 
the  receiver  against  which  a  preferential  claim  could 
be  asserted.  Assume,  however,  that,  before  the  bank 
closed  its  doors,  some  third  party  had  made  a  deposit 
of  $5,000  in  cash,  and  this  sum  had  passed  to  the  re- 
ceiver, as  part  of  the  assets  of  the  bank  ;  would  a  court 
of  equity    be   justified  in  holding-  that  under  such  cir- 


.398  TRUST  FUNDS  [VOL  I 

Beard  v.  Independent  Dist.  of  Pella  City 

cumstances  the  school  district  could  assert  a  right 
to  payment  in  full  out  of  this  fund,  to  the  exclusion  of 
the  creditor  of  the  bank  who  had  created  the  fund  by 
depositing"  it  in  the  bank?  In  the  supposed  case  it  would 
appear,  beyond  question,  that  the  trust  funds  belonging 
to  the  district  had  not  aided  in  creating  or  augmenting 
the  cash  fund  coming  into  the  receiver's  hands,  and 
clearly  it  would  be  inequitable  to  give  preference  to 
the  claim  of  the  school  district  over  that  of  the  party 
whose  money  had  in  fact  created  the  fund.  In  sub- 
stance, that  is  the  situation  disclosed  by  the  evidence 
in  this  case.  As  already  stated,  on  the  5th  day  of  May, 
1895,  the  treasurer  of  the  school  district  had  no  funds 
in  the  hands  of  the  bank,  but,  on  the  contrary,  the  ac- 
count was  overdrawn.  On  the  6th  and  13th  days  of 
May,  credits  on  the  account  were  entered,  of  checks 
drawn  on  the  bank,  which  did  not  add  one  dollar  to  the 
cash  in  hand  or  other  assets  of  the  bank.  The  cash 
fund  which  passed  into  the  receiver's  hands  is  the  bal- 
ance of  the  funds  on  hand  on  May  5th,  of  which  no 
part  belonged  to  the  school  fund,  the  treasurer's  ac- 
count being  then  overdraw^n,  and  the  cash  paid  in  since 
May  5th,  less  the  amount  paid  out  ;  all  of  the  cash 
paid  in  coming  from  sources  other  than  from  the  treas- 
urer of  the  school  district.  It  is  not  sufficient  for 
complainant  to  show  that  the  account  carried  on  the 
books  of  the  bank  under  the  heading,  "Treasurer  of 
the  Independent  School  District,"  represented  a  trust 
fund,  and  that  the  amount  shown  to  be  due  thereon 
from  the  bank  was  increased  by  crediting  up  the  checks 
of  the  count}^  treasurer.  The  point  at  issue  is  not  be- 
tween the  school  district  and  the  bank,  but  it  is  betw  een 
the  school  district  and  the  creditors  of  the  bank,  rep- 
resented by  the  receiver;  and,  to  entitle  the  school 
district  to  enforce  a  prior  equity  or  claim  against  t  he 
cash  fund  in  the  hands  of  the  receiver,  it  must  prove 
that  this  fund  has  been  augmented  by  the  additio  u 
thereto  of  trust  funds  belonging  to  the  district,  and  , 
for  the  reasons  stated,  we  hold  that  this  has  not  been 


B  CAS]  ULTRA  VIRES  399 

Pronger  v.  Old  Nat.  Bank 

done  ;  and  therefore  complainant  is  not  entitled  to  a 
priority  of  payment  out  of  the  funds  in  the  receiver's 
hands,  nor  to  a  prior  lien  upon  the  g^eneral  assets  of 
the  bank.  The  decree  appealed  from  is  reversed,  and 
the  case  is  remanded  to  the  circuit  court  with  instruc- 
tions to  dismiss  the  bill  on  the  merits. 


Pronger 


Old  Nat.  Bank  el  al. 

{Supreme  Court  of  Washington,  March  j,  i8gg.) 

National  Banks — Liability  for  Ultra  Vires  Acts.* — A  national  bank, 
or  other  corporation,  may  be  held  liable  in  a  civil  action,  at  the  suit 
of  the  injured  party,  for  every  wrong-  which  it  comniits,  however 
foreign  to  its  nature  or  bej'ond  its  granted  powers  the  wrongful 
transactions  may  be,  in  such  cases  the  doctrine  of  «//ra  vires  having 
no  application. 

Action  for  False  Representations — Sufficiency  of  Evidence. — In  an 
action  against  a  national  bank,  its  president  and  cashier,  for  dam- 
ages arising  from  fraud  alleged  to  have  been  perpetrated  upon 
plaintiff  by  defendants,  it  appeared  that  certain  notes  were  the 
property  of  the  bank  ;  that  the  notes  were  worthless,  the  payor 
being  insolvent  ;  and  that  defendants,  without  the  consent  of  plain- 
tiff, caused  the  notes  to  be  forwarded  to  him,  and  his  account  with 
the  bank  to  be  charged  with  the  face  value  of  the  notes,  falsely 
representing  that  the  notes  were  taken  for  a  loan  of  plaintiff's 
money  made  by  one  of  the  defendants  to  the  inaker  of  the  notes, 
that  the  maker  was  solvent,  and  that  the  notes  would  be  paid  on 
demand;  and  that  plaintiff  was  injured  thereby  to  the  amount  of 
the  verdict.  Held,  that  the  evidence  made  ^.  prima  facie  case  against 
defendants. 

Judgments — Reversal. — The  fact  that  the  weight  of  the  evidence 
may  appear  to  be  with  the  other  side  is  not,  alone,  sufficient  to  war- 
rant a  reversal  of  the  judgment. 

Estoppel. — In  such  action,  it  appeared  that  plaintiff,  after  he  had 
discovered  the  fraud,  and  had  tendered  the  notes  back  to  defendants, 
treated  them  as  his  own,  by  attempting  to  negotiate  and  dispose  of 
them.  Held,  that  plaintiff  was  not  estopped  by  reason  of  such 
attempt. 

Charge  to  Jury. — The  court's  charge  to  the  jury  must  be  read  as 
a  whole,  and  if  the  whole  charge  fairly  states  the  law-  of  the  case, 
as  applicable  to  the  facts,  it  will  not  work  a  reversal,  even  though 
disconnected  portions  of  the  charge  may  state  the  law  too  broadly. 

*See  note  at  end  of  case. 


400  ULTRA  VIRES  [vOL  I 

Prong-er  v.  Old  Nat.  Bank 

Appeal    by  defendants  from  Spokane  county  supe- 
rior court.     Affirmed. 

Stolid:  Macd<))iald  and  Jay   H.   Adams,   for  appel- 
lants. 

Blake  d'  Pos/,  for  respondent. 

PuLLERTON,  J.     This  is  an  action  brought  by  the 
respondent  ag-ainst  appellants  for  damages  arising  from 
fraud  alleged  to  have  been  perpetrated  upon  respondent 
by  the  appellants.      The  acts  constituting 
the  fraud  charged,  as  shown  by  the  com- 
plaint,   are    briefly    these:      The   appellant  bank    is  a 
national  bank  doing  business  at  Spokane,   in  Spokane 
county,   and  the  appellants  Glidden  and    Vincent  are 
respectively  presidentand  cashier  thereof.     That  about 
October  13,  18%,  the  respondent  had  on  deposit  in  the 
appellant  bank  some   $2,200,    which    he    was  desirous 
of  investing    in    some    profitable    business  ;    and    the 
appellants,  conspiring  together  to  cheat  and  defraud 
him  of  his  money,   induced  him  to  open  a  bank  at  the 
town  of   Cheney,   in    that  county,   and  invest  therein 
$2,000,  promising  and  agreeing  to  invest  therein  a  like 
amount,  and  such   further  sums  as  the  exigencies  of 
the  business  would  from  time  to  time  demand.     That 
appellants  had  no  intention  of  making  any  investment 
in  the  Cheney  Bank,  but  made  the  agreement  for  the 
sole  purpose  of  putting  off  onto  the  respondent  certain 
worthless    paper    belonging    to    the    appellant    bank. 
That  upon   the   organization  of    the    Cheney  Bank  the 
appellant  bank  became  its  correspondent,  and  furnished 
the  Cheney   Bank  with  monthly  statements  showing 
the    condition  of  the  account  between  defendants  and 
the  Cheney  Bank.       That  in  one  of  these   statements, 
furnished   on  the  last  of  March,    1897,  it  charged  the 
Cheney  Bank  with  two  items,  one  for  $500,  under  the 
date  of  March  15th,  and  the  other  of  $1,000,  under  the 
date  of  March  18th,  both  credited  to  the  O.  K.   Gold- 
Mining  Company.     That  upon  receiving  the  statement 
the  respondent  made  inquiry  by  telephone  of  the  appel- 
lant bank  concerning  these  items,  and   was  told  that 


B  CAS]  ULTRA  VIRES  401 

Pronger  v.  Old  Nat.  Bank 

the  itetiis  represented  charg^es  taken  from  tickets  fur- 
nished the  bookkeeper  by  the  cashier,  and  that  no  one 
present  could  g"ive  any  further  explanation  as  to  them  ; 
that  Vincent,  the  cashier,  was  Kast,  and  would  explain 
upon  his  return.  That  upon  the  return  of  Vincent  he 
renewed  his  inquiry,  and  was  informed  that  they  repre- 
sented two  notes,  for  the  several  amounts  mentioned, 
executed  to  the  appellant  bank  by  the  O.  K.  Gold-Min- 
ing Company.  That  Vincent  assured  him  that  the 
payor  was  solvent,  that  the  notes  were  as  g^ood  as  any 
paper  the  appellant  bank  had,  and  would  be  paid 
promptly  on  demand.  That  the  respondent  relied  on 
the  statements  made  to  him  by  Vincent,  accepted  the 
notes,  and  gave  the  appellant  bank  credit  for  them. 
That  the  notes  were  the  property  of  the  appellant 
bank,  were  worthless,  and  the  payor  insolvent,  all  of 
which  was  known  to  the  appellants.  That  the  notes 
were  forwarded  to  him,  and  representations  were 
made  to  him,  for  the  sole  purpose  of  cheating-  and  de- 
frauding- him  out  of  his  money,  in  pursuance  of  -a  con- 
spiracy entered  into  by  the  appellants.  That,  upon 
learning  of  the  spurious  character  of  the  notes,  the 
respondent  rescinded  the  transaction,  tendered  the  notes 
to  appellants,  and  demanded  payment  of  them,  which 
the  appellants  refused.  That  by  reason  of  the  frauds 
he  was  damaged,  etc.  The  appellants  severally  de- 
murred to  the  complaint  on  the  ground  that  no  cause  of 
action  was  stated.  On  the  demurrers  being*  overruled,, 
they  answered  jointly,  denying"  the  contract  and  fraud 
alleged,  and,  by  way  of  separate  answer,  averred  that 
the  respondent  and  Vincent  entered  into  a  partnership 
for  the  conduct  of  the  banking  business  at  Cheney  ; 
that  the  sum  paid  the  O.  K.  Gold-Mining  Company  was 
paid  out,  under  the  directions  of  Vincent,  on  a  loan 
made  by  Vincent  to  that  company  of  the  money  of  the 
Bank  of  Cheney;  and  that  neither  theappellant  bank  nor 
Glidden  had  anything-  to  do  with  the  transaction, 
further  than  to  transfer  the  account,  under  Vincent's 
direction,  on  the  books  of  the  appellant  bank.  The 
respondent  replied,  denying-    the    new  matter  alleg-ed. 

B  CAS  —26 


402  ULTRA  VIRES  [vol  I 

Pronger  r.  Old  Nat.  Bank 

On  the  issues  thus  made  a  trial  was  had,  which  resulted 
in  a  verdict  and  iudg-ment  for  respondent  for  the  sura 
of  $1,536.75. 

1.  The  first  assigfnment  of  error  is  that  the  court 
erred  in  overruling  the  demurrer  to  the  complaint. 
That  the  complaint  is  sufficient  as  to  the  appellants 
Vincent  and  Glidden  is  not  here  seriously  disputed. 
On  the  part  of  the  bank  it  is  arg-ued  that  the  ag-ree- 
ment  set  forth  in  the  complaint  was  one  of  partner- 
ship ;  that  the  respondent  was  bound  to  know  that  it 
was  be3'ond  the  power  of  a  national  bank  to  enter  into 
a  partnership  ag-reement,and  hence  there  were  no  repre- 
sentations on  the  part  of  the  bank  on  which  he  had  a 
rig-ht  to  rely  ;  that,  if  there  is  any  liability  at  all  on  the 
part  of  the  bank  to  respondent,  it  is  only  on  contract 
to  recover  a  balance  of  account  due  from  the  bank. 
We  think  the  demurrer  was  properly  overruled.  It  is 
true,  a  corporation,  as  a  merely  leg^al  entity,  can  have 
no  will,  and  cannot,  of  itself,  act  at  all.  But  in  its 
relation  to  the  public  it  is  represented  by  its  officers 
and  lawfully  authorized  ag-ents,  and  their  acts  in  the 
course  of  corporate  dealing's  are,  in  law,  the  acts  of  the 
corporation.  Whatever  the  rule  may  have  been  for- 
merly, it  is  now  settled  beyond  controversy  that  a  cor- 
poration is  liable  to  the  same  extent,  and  under  the  same 
circumstances,  as  a  natural  person,  for  the 
latinnai  Banks-   couseo ucnce  of  its   wrongful  acts,  and  will 

liabilly  for  Ultra     ,,,,    ,  ,•  ••,  ,•  i.j.u 

Tirrsicts.  be  held  to  respond,  in  a  civil    action,  at    the 

suit  of  an  injured  party,  for  every  wrong" 
which  it  commits,  however  foreign  to  its  nature  or 
beyond  its  g-ranted  powers  the  wroug-ful  transactions 
may  be.  In  such  cases  the  doctrine  of  itU7-a  vires  has 
no  application.  Bank  v.  Graham,  100  U.  S.  699  ; 
Merchants'  Bank  v.  State  Bank,  10  Wall.  604;  State 
V.  Morris  &  E.  R.  Co.,  23  N.  J.  Law,  360  ;  Railway 
Co.  V.  Harris,  122  U.  S.  597,  7  Sup.  Ct.  1286  ;  Alex- 
ander V.  Relfe,  74  Mo.  495  ;  Buffalo  Lubricating-  Oil 
Co.  V.  Standard  Oil  Co.  (N.  Y.  App.)  12  N.  K.  825  ; 
Jackson  v.    Insurance  Co.   (N.   Y.  App.)  1  N.   E.  539  ; 


B  CAS]  ULTRA  VIRES  403 

Pronger  v.  Old  Nat.  Bank 

Nevada  Bank  of  San  Francisco  v.  Portland  Nat.  Bank, 
59 Fed.  338  ;  Thonip.  Corp.  §§  6329,  6279. 

2.   In  the  court  below,  after  respondent  had    rested 
his  case  in    chief,  the  appellants  challeng-ed   the  suffi- 
ciency of  the  evidence  to  sustain  a  verdict  ag-ainstthem, 
and  moved  the  court  to  direct  a  verdict  ag-ainst  the  re- 
spondent.    After  the  evidence  was  all  in,  they  renewed 
their    objection  and  motion,  and  after  judg-ment  moved 
for  a  new  trial,   setting  up  the  same  ground.     These 
several  objections  and  motions    were  overruled  by  the 
lower   court.     The  appellants  in  this  court  earnestly 
insist   that   the  court  erred  in  so  doing-.      It  is  insisted 
(1)  that   there    was  no   evidence   before  the  jury  suffi- 
cient to  make  a  /rma/r/c/e- case  against  the  appellants  ; 
and,  (2)  if  there   was  2.  prima  facie  case  made,  the  evi- 
dence of  the   appellants  so  overcame  the  respondent's 
case  as  to  make  it  apparent  that   the   jury  disregarded 
the  evidence,  ig-nored  the  instructions  of  the  court,  and 
arrived  at  their  verdict  through  the  influence  of  passion 
and  prejudice.     This  calls  for  an  examination  of  the  evi- 
dence.    We    think   no   useful    purpose  would  be  sub- 
served by  setting  out  the  evidence  in  detail,  and  that  it 
is  sufficient  to  say  that  the    record  discloses 
some   evidence  from    which  the  jury  could  R'/,!r?sJntHt?«n«''- 
reasonably    infer    that  the    two  notes  of  the  '^"/jJi,;';^^  *' 
O.    K.    Gold-Mining    Company    were    the 
property    of    the  appellant  bank;  that  the   payor    was 
insolvent,  the  notes  worthless,  and  that  the  appellants, 
knowing-    of  this,    without  the  consent   of  respondent, 
caused    the    notes    to    be    forwarded    to   him,   and    his 
account    with  the  appellant    bank  to   be  charg-ed  with 
the    face  value  of  the  notes,    falsely   representing  that 
the  notes  were  taken  for  a  loan  of  respondent's  money 
made  by  one    of  the  appellants  to  the  mining-  company, 
that  the   mining-  company    was  solvent,  and   that  the 
notes  would  be  paid  on  demand;  and  that  the  respond- 
ent   was  injured  thereby  to  the  amount  of  the  verdict. 
This  would  make  ^  frima  facie  case. 

On   the  second  proposition  nothing  is  pointed  out  to 
us  in  the  record,  and  we  have  discovered  nothing-,  other 


404  ULTRA  VIRES  [vol,  I 

Pronger  v.  Old  Nat.  Bank 

than  that  the  weight  of  the  evidence  may  appear  to  be 
agfainst  the  respondent,  which  would  indi- 
B^fmar.'""  ^^^^  ^^^^  ^^^  ju^'y  were  influenced  in  ar- 
riving' at  the  verdict  by  passion,  prejudice, 
or  other  arbitrary  motive,  or  that  the  verdict  was  not 
the  deliberate  judg-ment  of  the  jury  upon  the  evidence 
before  them.  But  the  fact  that  the  weig-ht  of  the 
evidence  may  appear  to  be  with  the  other  side  is  not, 
alone,  sufficient  to  warrant  the  court  in  reversing-  a 
judg-ment.  To  do  so  for  this  reason  is  to  usurp  the 
functions  of  the  jury,  to  make  this  court  the  final 
arbiter  on  all  questions  of  fact  as  well  as  of  law,  and 
to  deny  the  constitutional  rig-ht  of  a  litigant  to  have 
the  facts  of  his  case  determined  by  a  jury.  This 
doctrine  has  been  repeatedly  announced  by  this  court. 
Graves  v.  Banking-  Co..  3  Wash.  742,  29  Pac.  344; 
Booth  V.  Railroad  Co.,  6  Wash.  531,  33  Pac.  1075; 
Dillon  V.  Polsom,  5  Wash.  439,  32  Pac.  216;  Bucklin 
V.  Miller,  12  Wash.  152,  40  Pac.  732;  Robertson  v. 
Woolley,  12  Wash.  326,  41  Pac.  48;  Lambuth  v.  Mill 
Co.,  14  Wash.  187,  44  Pac.  148;  Miller  r.  Bean,  13 
Wash.  516,  43  Pac.  636;  Brown  z-.  Railway  Co.,  16 
Wash.  465,  47  Pac.  890;  Citv  of  Tacoma  v.  Tacoma- 
Light  &  Water  Co.,  17  Wash.  458,  50  Pac.  55.  It  is  true 
that  this  court,  in  the  case  of  Guley  v.  Transportation 
Co.,  7  Wash.  491,  35  Pac.  372,  reversed  a  judg-ment 
rendered  on  a  verdict  of  a  jury  because,  in  the  opinion 
of  a  majority  of  the  court,  the  decided  weight  of  the 
evidence  was  ag-ainst  the  verdict.  In  that  case  the 
court  said :  "While  we  shall  ordinarily  be  very  slow 
to  interfere  with  the  verdict  of  a  jury  where  the 
testimony  is  conflicting,  we  do  not  think  justice  would 
be  done,  were  this  one  allowed  to  stand.  There  may 
be,  and  sometimes  are,  cases  where  the  testimony  of 
a  single  witness,  even  a  child,  will  outweig-h  that  of 
many  opposed,  w^here  there  are  circumstances  of  sus- 
picion connected  with  them.  But  there  was  not  in  this 
case  a  single  attempt  to  break  down  or  impeach  a  wit- 
ness for  the  defendant,  and  much  of  what  the}^  did  say 
that  was  material  was  not  contradicted   by  the  plaintiff, 


B  CAs]  ULTRA  VIRES  405 

Pronger  v.  Old  Nat.  Bank 

thouofh  he  was  called  iu  rebuttal.  Credible  witnesses 
cannot  be  set  aside  in  this  vvay,  and  a  verdict  supported 
on  the  uncorroborated  testimony  of  a  singfle  witness, 
and  he  the  party  most  interested.  Where  the  clear 
weight  of  the  evidence  is  with  either  side,  there  is  no 
substantial  conflict,  and  the  court  should  take  the  case 
from  the  jury."  Two  members  of  the  court  dissented 
from  the  conclusion  reached  by  the  majority,  and  a 
strong-  dissenting^  opinion  was  filed.  In  the  subsequent 
case  of  Brown  v.  Railway  Qo.,  supra,  this  court,  com- 
menting- upon  theGuley  Case,  said  that  it  did  not  favor 
any  extension  of  the  rule  announced  therein  ;  and  in 
the  case  of  City  of  Tacoma  v.  Taconia  Light  &  Water 
Co.,  supra,  it  was  said  :  "We  think  the  court,  in  Guley 
V.  Transportation  Co.,  went  beyond  the  true  rule,  in 
applying-  it  to  the  facts  in  that  case."  In  neither  of 
the  cases  last  cited  was  the  Guley  Case  directly  over- 
ruled ;  but,  whatever  may  remain  of  it  as  authority, 
this  court  will  not  follow  it  to  the  extent  of  holding 
that  it  will,  in  any  case  where  there  is  a  substantial 
conflict  in  the  evidence,  reverse  a  judgment  founded 
upon  the  verdict  of  a  jury,  because  it  may  be  of  the 
opinion  that  the  weight  of  the  evidence  is  contrary  to 
the  conclusion  necessary  to  be  reached  in  order  to  sus- 
tain the  judgment. 

3.  On   cross-examination   of  the   respondent,   it  was 
shown  that  after  he  had  discoversd  the  fraud  practiced 
upon  him,    and    had    tendered  the  notes  back   to  the 
appellants,  he  treated  them  as  his  own,  by 
attempting  to  negotiate  and  dispose  of  them.  '  "'*'"' " 

This,  the  appellants  contend,  operated  to  estop  respond- 
ent from  complaining  of  the  fraud,  and  bars  his  right 
to  recover  in  any  form  of  action.  But  we  think  the 
rule  is  not  so  broad  as  the  contention  of  the  appellants. 
There  is  a  wide  distinction  between  an  action  brought 
to  rescind  a  contract  on  the  ground  of  fraud,  and  an 
action  to  recover  damages  for  fraud  arising  out  of  a  con- 
tract. The  action  to  rescind  is  of  an  equitable  nature, 
and  the  party  seeking  equity  must  do  equity.  On 
discovering   the   fraud,  the  party  injured  must  tender 


406  ULTRA  VIRES  [VOL  I 

Prong-er  v.  Old  Nat.  Bank 

back  to  the  other  party  the  benefits  of  the  contract,  so 
far  as  received  by  him,  and  place  the  other  party  as 
nearly  as  possible  in  statu  quo.  He  must  act  promptly, 
keep  his  tender  available,  and  bring*  his  action  without 
unreasonable  delay.  The  action  for  damag^es  is  a  law 
action  for  a  money  judg-ment,  requires  no  tender,  and 
may  be  brought  by  the  injured  party  at  any  time  with- 
in the  statute  of  limitations.  Nor  does  an  affirmance 
of  the  contract  after  discovery  of  the  fraud  extinguish 
the  rig-ht  to  an  action  for  damages  on  account  of  the 
fraud.  An  affirmance  bars  only  the  rig-ht  to  rescind. 
All  other  remedies  remain  unimpaired.  Love  v.  Old- 
ham, 22  Ind.  51  ;  Vinevard  Co.  r.  Tuohy,  107  Cal.  243, 
40  Pac.  386  ;  Hunt  v.  Blanton,  89  Ind.  38  ;  Sackman  v. 
Campbell,  15  Wash.  57,  45  Pac.  895  ;  Kerr,  Fraud  & 
M.  p.  330.  The  present  action  is  of  the  latter  class, 
and  was  so  recognized  b}^  the  learned  judge  who  pre- 
sided at  the  trial  of  the  cause  in  the  court  below.  His 
refusal  to  instruct  the  jury,  as  requested  by  appellants, 
to  the  effect  that  such  conduct  on  the  part  of  respon- 
dent barred  his  right  to  recover,  was  not  error. 

4.  A  part  of  the  charg-e  of  the  court  to  the  jury  was 
as  follows  :  '  'The  issues  for  you  to  try  are  :  (1)  Whether 
or  not  the  defendants,  or  any  of  them,  entered  into  the 
fraudulent  scheme  or  conspiracy  alleg^ed  in  the  com- 
plaint ;  (2)  whether  or  not,  in  pursuance  of  such  fraud- 
ulent scheme  or  conspiracy,  if  you  find  from  the  evi- 
dence such  existed,  defendants,  or  either  of  them, 
induced  plaintiff  to  deposit  his  money  in  the  defendant 
the  Old  National  Bank,  and  to  receive  therefor  the  two 
notes  of  the  O.  K.  Gold- Mining-  Company,  mentioned 
in  the  complaint ;  (3)  if  you  find  from  the  evidence  that 
such  conspiracy  or  fraudulent  scheme  existed,  and  that 
througfh  the  same  the  plaintiff  was  induced  to  take  the 
two  said  notes,  then  you  must  find  from  the  evidence 
what,  if  any,  damagi^es  plaintiff  suffered  thereby. 
-:<■  *  -:f  It  is  not  necessary,  for  the  plaintiff  to  recover, 
that  the  exact  fraud  alleged  in  the  complaint  be  proven. 
It  will  be  sufficient  if  the  defendants,  or  either  of  them, 
by  agreement  or  understanding,  expressed  or  implied. 


B  CAS]  ULTRA  VIRES  407 

Prong-er  v.  Old  Nat.  Bank 

by  fraudulent  means,  substantially  as  alleo-ed  In  the 
complaint,  deprived  the  plaintiff  of  his  money.  *  -^  * 
If  you  find  from  the  evidence  that  the  defendants,  or 
any  of  them,  were  g-uilty  of  the  fraud  complained  of 
and  set  forth  in  plaintiff's  complaint,  and  that  by  reason 
thereof  the  plaintiff  was  induced  to  take  the  two  O.  K. 
Gold-Mining-  Company  notes  mentioned,  and  the  de- 
fendants, or  any  of  them,  took  and  received  therefor 
any  of  the  plaintiff's  money,  then  you  must  find  for  the 
plaintiff  in  the  sura  of  money  so  taken  by  the  defend- 
ants, or  either  of  them.  *  *  *  If  you  find  further 
from  the  evidence  that  the  State  Bank  of  Cheney  was 
so  charged  with  said  notes  through  and  by  virtue  of  the 
fraud  of  the  defendants,  or  either  of  them,  as  alleged 
in  the  complaint,  then  the  plaintiff  would  be  entitled  to 
recover  in  this  suit  the  difference  between  the  sum  so 
charged  and  the  actual  value  of  said  notes."  It  is  ob- 
jected by  the  appellants  that  these  instructions  were 
erroneous  because  under  them  the  jury  were  author- 
ized to  find  the  appellants  guilty  of  fraud  not  alleged 
in  the   complaint,  and,    if  they  found  one  or  _ 

r     n  n  -irir  i      Charge  t«  Jury. 

more  or  the  appellants  guilty  ot  the  fraud 
charged,  they  were  authorized  to  find  a  verdict  against 
each  and  all  of  the  defendants.  Standing-  alone,  this 
part  of  the  charge  may  be  subjectto  the  criticism  of  the 
appellants.  But  it  is  a  familiar  principle  of  law  that 
the  court's  charge  to  the  jury  must  read  as  a  whole, 
and  if  the  whole  charge  fairly  states  the  law  of  the 
case,  as  applicable  to  the  facts,  it  will  not  work  a  re- 
versal, even  though  disconnected  portions  of  the  charg-e 
may  state  the  law  too  broadly.  It  is  not  practicable 
for  the  court  to  incorporate  in  each  paragraph  of  the 
instructions  the  exceptions  and  modifications  of  the  gen- 
eral rules  therein  announced.  To  do  so  would  lead  to 
prolixity,  and  tend  rather  to  mislead  and  confuse  the 
jury  than  to  enlighten  them.  In  this  case,  as  a  limita- 
tion upon  his  general  statement,  the  court  distinctly 
told  the  jury  that  they  were  authorized  to  find  for  or 
against  any  one  or  more  of  the  defendants  according  as 
the}^  should   determine  the  evidence  warranted,  and  at 


408  ULTRA  VIRES  [vOL  I 

Note 

the  request  of  the  appellants  charg-ed  :  "You  can  ren- 
der a  verdict  in  this  case  in  favor  of  the  plaintiff  ag-ainst 
any  one  or  more  of  defendants,  but  you  cannot  render 
a  verdict  ag-ainst  any  of  the  defendants  ag-ainst  whom 
there  is  not  clear  and  positive  proof.  I  advise  you  fur- 
ther, as  a  matter  of  law,  that  if  the  plaintiff  has  not 
proved  a  case  of  express  fraud,  such  as  I  have  hereto- 
fore defined  to  you,  involving"  knowledge  on  the  part 
of  the  defendants,  and  the  willful  and  corrupt  purpose 
on  their  part  to  cheat  and  defraud  plaintiff,  the  plaintiff 
cannot  recover.  He  cannot  recover  upon  any  other 
cause  of  action  or  theory,  except  that  set  forth  in  the 
complaint."  As  thus  modified,  we  do  not  think  that 
the  greneral  statement  of  the  court  in  the  instructions 
complained  of  could  have  in  any  wise  misled  the  jury, 
5.  The  appellants  complain  of  certain  ruling's  of  the 
court  made  at  the  time  of  the  trial,  in  the  admission 
and  rejection  of  evidence.  A  careful  inspection  of  the 
record  does  not  disclose  error  sufficiently  prejudicial  in 
such  ruling's  to  warrant  a  reversal  of  the  case.  The 
judg-ment  will  be  affirmed. 

Gordon,  C.  J.,  and  Dunbar,  Anders,  and  Reavis, 
JJ.,  concur. 


NOTE. 

Liability  of  Corporation  for  Wrongs — Ultra  Vires. — The  doctrine 
of  ultra  vires  has  no  application  to  the  wrongs  done  bj'  a  corpora- 
tion ;  hence  corporations  are  liable  for  every  wrong  of  which  they 
are  guilty.  Philadelphia  W.  &  B.  Co.  v.  Quigley,  21  How.  (U.  S.| 
209;  Green  v.  London  Omnibus  Co.,  7  C.  B.  290;  Life  &  Fire  Ins. 
Co.  V.  Mechanics'  Ins.  Co.,  7  Wend.  (N.  Y.)  31  ;  First  Nat.  Bank  v. 
•Oraham,  100  U.  S.  699  :  Bissell  v.  Michigan  Southern,  etc.,  R.  Co.,  22 
N.  Y.  258 ;  Salt  Lake  City  v.  Hollister,  118  U.  S.  256  ;  Alexander  v. 
Relfe,  74  Mo.  495  ;  South,  etc.,  R.  Co.  v.  Chappell,  61  Ala.  527.  In 
this  last  case  it  was  said  :  "It  is  not  necessary,  to  fix  the  liability, 
that  the  wrongful  act,  or  the  negligence  from  which  the  injury  pro- 
ceeds, should  have  been  committed  while  the  corporation  was  in  the 
exercise  of  the  powers  conferred  by  its  charter.  It  may  have  been 
committed  while  the  corporation,  or  its  servants  or  agents,  acting 
under  its  authority,  were  exceeding  corporate  power  or  engaged  in 
business  or  transactions  wholly  foreign  to  its  nature." 

Corporations  are  liable  for  every  wrong  of  which  they  are  guilty, 
and  in  such  cases,  the  doctrine  of  ultra  vires  has  no  application. 
Merchants'  Nat.  Bank  v.  State  Nat.  Bank,  10  Wall.   (U.  S.)   604. 


B  CAS]  ULTRA  VIRES  409 

American  Nat.  Bank  of  Denver  v.  Hammond 

In  New  York,  etc.,  R.  Co.  v.  Schuyler,  34  N.  Y.  30,  it  is  said  that  a 
corporation  is  liable  to  the  same  extent,  and  under  the  same  circum- 
stances, as  a  natural  person,  for  the  consequences  of  its  wrong-ful 
acts,  and  will  be  held  to  respond  in  a  civil  action,  at  the  suit  of  an 
injured  party,  for  every  grade  and  description  of  forcible,  malicious 
or  neg-ligent  tort,  or  wrong-,  which  it  commits,  however  foreign  to 
its  nature  or  beyond  its  general  powers  the  wrongful  transaction 
or  act  may  be. 

But  see  Hood  v.  New  York,  etc.,  R.  Co.,  22  Conn.  1,  22  Conn.  502, 
23  Conn.  609,  and  Bathe  v.  Decatur  County  Agricultural  Soc,  73 
Iowa  11,  5  Am.  St.  Rep.  651. 


American  Nat.  Bank  of  Denver 

V. 

Hammond. 

(Supreme  Court  of  Colorado,  Oct.  lo,  i8g^.) 

False  Representations— Ultra  Vires— Bank's  Liability.*— Although 
it  was  no  part  of  the  business  of  the  defendant  bank  to  make  repre- 
sentations or  statements  regarding  the  financial  responsibility  of 
C,  or  the  value  of  certain  mining  stock,  if  they  were  false,  and  made 
in  pursuance  of  an  agreement  with  C,  and  indirectly  for  the  benefit 
of  the  bank,  and  such  benefit  was  received  and  retained  by  the  bank, 
it  could  not  escape  liability  upon  the  ground  that  it  was  ultra  vires 
on  its  part  to  make  the  representations. 

Same— Reliance. — The  representations  attributed  to  the  bank 
officials  related  to  matters  regarding  which,  from  the  nature  of  the 
previous  transactions  between  C.  and  the  bank,  they  would  be  pre- 
sumed to  have  knowledge  ;  and  plaintiff  was  not  charg-eable  with 
notice  of  facts  tending  to  cast  doubt  upon  the  truth  of  the  represen- 
tations. Held,  that  plaintiff  was  justified  in  relying  upon  such 
representations. 

Instructions— Evidence. — It  appearing  from  the  evidence  that  no 
statements  regarding  the  solvency  of  C.  were  made  to  plaintiff,  a 
question  on  such  subject  should  not  have  been  submitted  to  the  jury. 

Reliance. — False  representations  not  relied  upon  cannot  be  made 
the  basis  of  an  action  for  damages. 

Question  for  Jury. — As  it  could  not  be  said,  as  a  matter  of  law, 
that  the  statements  of  the  bank's  officer  as  to  the  value  of  the  stock 
were  mere  expressions  of  opinion,  and  not  statements  of  facts,  or 
vice  versa,  a  question  on  the  subject  should  have  been  submitted  to 
the  jury. 

Same  —  Measure  of  Damages.  —  In  such  actions,  damages  are 
limited  to  the  natural  and  proximate  consequences  of  the  acts  com- 
plained of  ;  and  those  results  are  proximate  which  the  party  charged 
with  such  acts  must  have  contemplated  as  the  probable  consequences 
arising  therefrom. 

*See  Pronger  v.  Old  Nat,  Bank  et  al.  (Wash.),  ante  and  note. 


410  ULTRA  VIRES  [vOL  I 

American  Nat.  Bank  of  Denver  v.  Hammond 

Appeal  by  defendant  from  Arapahoe  county  district 
court.     Reversed. 

Appellee,  as  plaintiff  below,  seeks  to  recover  from 
appellant  the  balance  due  upon  the  purchase  price  of 
the  contents  of  a  drutr  store,  sold  by  him  to  Kdward 
..  .sf  f  ^  ^"^^  Frank  Crowl,  and  bases  his  rig-ht  upon 

Case  stated.  ,        rn  •  r  i-  • 

the  toUowing-  tacts,  claimed  by  him  to  have 
been  established  at  the  trial :  That,  at  the  time  neg-otia- 
tions  for  the  sale  were  pending-,  the  latter  referred  him 
to  appellant  for  information  regfarding-  their  financial 
responsibility,  and  the  value  of  mining*  stock  which 
they  proposed  to  pledg-e  as  collateral  for  the  payment 
of  the  balance  of  the  purchase  price  ;  that  at  this  time 
the  Growls  were  indebted  to  appellant,  which  indebted- 
ness was  secured  b}^  mining-  stock  of  the  same  company 
which  the}'  proposed  to  pledg-e  appellee  ;  that  an  ag-ree- 
ment  existed  between  them  and  the  bank  that  they 
should  refer  the  appellee  to  it  for  the  above  information, 
and  that  it  should  recommend  them  to  him  as  solvent 
persons,  and  the  mining-  stock  good  securit}^  for  the 
amount  for  which  he  expected  to  extend  them  credit  in 
the  transaction,  so  that  the  Growls  mig-ht  be  enabled 
to  purchase  from  him,  who,  in  turn,  were  to  pledg-e 
the  property  thus  obtained  as  security  for  the  indebted- 
ness due  from  them  to  appellant ;  that  he  applied  to 
the  bank  for  this  information,  and  that,  pursuant  to 
this  ag-reement,  appellant  represented  to  him  that  the 
Growls  were  solvent,  and  the  mining- stock  valuable, 
and  g-ood  security  for  the  amount  for  which  he  expected 
to  accept  it  as  collateral,  which  representations  were 
false,  and  known  by  appellant  so  to  be,  and  made  for 
the  purpose  of  inducing-  him  to  sell  to  the  Growls,  in 
order  that  it  mig-ht  be  benefited  in  the  manner  above  in- 
dicated ;  that,  relying-  upon  the  truth  of  these  state- 
ments, he  consummated  the  deal  with  the  Growls,  and 
received  from  them  the  mining-  stock  in  question  as  se- 
curity for  the  unpaid  balance  of  the  purchase  price  ; 
that,  on  the  consummation  of  the  deal  between  himself 
and  the  Growls,  the  latter  pledg-ed  to  appellant  the 
property  purchased,  and  that  it  has  taken  possession  of 


I 


B  CAS]  ULTRA  VIRES  411 

American  Nat.  Bank  of  Denver  v.  Hammond 

and  sold  it ;  that  the  Growls  are  insolvent,  and  the 
mining-  stock  of  no  value  ;  and  that  he  is  unable  to 
collect  from  them  the  unpaid  balance  for  the  property 
so  sold.  At  the  trial  appellant  offered  to  prove  that 
the  property  purchased  was  not  worth  the  sum  for 
which  appellee  had  sold  it,  which  offer  was  refused  ; 
and,  inlei-  alia,  the  court  instructed  the  jury  that  the 
measure  of  damages,  in  case  they  found  for  the  appel- 
lee, would  be  the  amount  for  which  he  gave  credit  to 
the  Growls  upon  the  sale,  with  interest.  There  was  a 
verdict  and  judgment  for  appellee.  Such  further  ref- 
erence to  the  record  and  evidence  as  may  be  necessary 
for  an  understanding*  of  the  questions  decided  will  be 
found  in  the  opinion. 

T.J.  O"  Donnell,  W.  S.  Decker,  •a.nA  Milton  Smith, 
for  appellant. 

Cranston,  Pitkin  &  Moore  and  T.  E.  Walters,  for 
appellee. 

GabberT,  J.  (after  stating  the  facts).  Of  the  nu- 
merous errors  assigned  by  appellant,  it  is  only  neces- 
sary to  pass  upon  those  included  in  the  following  prop- 
ositions suggested  by  its  counsel  :  First.  That  it  was 
no  part  of  the  business  of  the  bank  to  make  represen- 
tations regarding  the  financial  condition  of  the  Growls, 
or  the  value  of  the  mining  stock,  and,  therefore,  it  is 
not  liable  for  the  statements  of  its  officers  in  this  re- 
spect ;  that  the  evidence  does  not  establish  the  allega- 
tions of  the  complaint ;  that  appellee  was  not  justified 
in  relying  upon  the  statements  of  the  bank  officials 
respecting  the  Growls  and  their  mining  stock  ;  and 
that  the  statements  attributed  to  these  officials  were  but 
mere  expressions  of  opinion  or  belief,  and  therefore  not 
actionable.  Second.  That  the  court  erred  in  its  instruc- 
tion regarding  the  measure  of  damages,  and  in  refusing 
to  permit  appellant  to  introduce  evidence  touching  the 
value  of  the  stock  of  merchandise. 

1.  A  corporation  must  act  throug-h  its  agents,  who 
can  only  bind  it  within  the  scope  of  the  powers  for  which 


412  ULTRA  VIRES  [vOL,  I 

American  Nat.  Bank  of  Denver  v.  Hammond 

it  was  created   (Cooley,  Torts  [2d  Ed.]  136  ;  Weckler 

V.  Bank,  42  Md.  581) ;  but  where,  throujrh 

False  Rfprmnta-    its  agfetits,  assumingf  to  act  in   its  behalf,  it 

tiniis -Ultra  Vires  '^  '  •  ,,         r        •  r  i 

-Bunk's  Liability,  reaps  and  retains  the-iruits  or  an  unauthor- 
ized transaction,  this  doctrine  is  no  long-er 
applicable,  for  it  cannot  interpose  the  defense  of  tcltra 
vires,  and  still  retain  the  benefits  thus  acquired  (Amer- 
ican Nat.Bank  v.  National  Wall-Paper  Co.,  23  C.  C.  A. 
33,  77  Fed.  85;  Thomp.  Corp.  §§  6015,  6016).  It  was  no 
part  of  the  business  of  appellant  to  make  representa- 
tions or  statements  regfarding-  the  financial  responsibil- 
ity of  the  Crawls,  or  the  value  of  the  minino-  stock,  and 
for  such  representations  alone  it  could  not  be  held 
liable  ;  but,  coupled  with  the  ag-reement  said  to  have 
existed  between  it  and  the  Crowls,  and  the  alleg^ed 
object  of  the  bank  in  aidinof  them  to  secure  the  prop- 
erty of  appellee,  in  connection  with  its  acts  in  subse- 
quently acquirinof  this  property  for  its  own  benefit,  it 
cannot  escape  liability  upon  the  g-round  that  the  trans- 
action was  not  within  the  scope  of  its  corporate  powers, 
and,  if  the  facts  upon  which  appellee  relies  were 
established,  he  was  clearly  entitled  to  recover  the 
damag-es  sustained  by  reason  of  the  acts  of  appellant. 
Relative  to  the  proposition  that  the  evidence  does  not 
establish  the  facts  upon  which  appellee  relies  for  a 
recovery,    it   is    not  necessary  to  notice  the  testimony, 

except  in  so  far  as  its  sufficiency  or  material- 
same— R«iiance.       •.        1  1       •  Tr         rr    •      l  ' 
ity   bears   upon   the  issues.     It  sumcient  in 

this  respect,  it  was  the   province  of  the   jur}^  to  deter- 

mine    the    facts,    and,    if   the    testimony   supports  the 

issues   tendered    by    the    complaint,    the    verdict   and 

judgmeut  cannot    be    disturbed   upon  this  ground  ;  so 

that  a  disposition    of  this  question    depends   upon    the 

views  expressed  on  the  remaining'  ones,  included  in  the 

first  proposition  advanced  by  counsel  for  appellant.    It 

appears  that  the  representations  attributed  to  the  bank 

officials  related  to  matters  reg'arding  which,  from  the 

nature  of  the  previous  transactions  between  the  Crowls 

and  the  bank,  they  would  be  presumed  to  have  knowlr 


B  CAS]  ULTRA  VIRES  413 

American  Nat.  Bauk  of  Denver  v.  Hammond 

edgfe.  There  was  nothing"  in  the  transaction,  nor  does 
appellee  appear  to  have  possessed  an}^  information, 
which  would  have  aroused  his  suspicions,  or  cast  doubt 
upon  the  truth  of  the  statements  claimed  to  have  been 
made  by  the  bank  officers  ;  and  he  was  therefore  jus- 
tified in  relying"  upon  them,  in  so  far  as  the  law  recog-- 
nizes  them  of  that  character  that  their  falsity  mav  be 
actionable.  2  Pom.  Eq.  Jur.  (2d  Ed.)  ^§  891,  892. 
The  general  rule  is  that  a  representation  cannot  form 
the  basis  of  an  action  for  falsity  unless  it  relates  to  a 
matter  of  fact,  as  distinguished  from  opinion.  The 
difficulty  arises  in  making-  the  distinction.  The  true 
rule  appears  to  be  that  a  fraudulent  misrepresentation 
cannot  itself  be  the  mere  expression  of  an  opinion 
entertained  by  the  party  making  it  ;  but  where  such 
party  makes  a  statement  which  might  otherwise  be 
onlv  an  opinion,  and  does  not  state  it  as  the  mere 
expression  of  his  opinion,  but  affirms  it  as  a  fact, 
material  to  the  transaction  to  which  it  relates,  so  that 
the  person  to  whom  it  is  addressed  may  reasonably 
treat  it  as  a  fact,  and  rely  and  act  upon  it  accordingly, 
then  such  statement  becomes  an  affirmation  of  a  fact, 
within  the  meaning  of  the  general  rule,  and  may  be  a 
fraudulent  misrepresentation.  2  Pom.  Eq.  Jur.  (2d 
E^d.)  §  878.  If  the  representations  are  of  such  charac- 
ter that  they  will  bear  either  the  construction  that  they 
were  expressions  of  opinion  or  statements  of  fact,  the 
question  which  they  were  must  be  decided  by  the 
fury  (3  Suth.  Dam.  [2d  Ed.]  §  1167  ;  Teague  v.  Irwin, 
127  Mass.  217  ;  Sterne  v.  Shaw,  124  Mass.  59) :  but, 
in  order  to  justify  a  finding  that  they  were  representa- 
tions of  fact,  they  must  be  statements  susceptible  of 
knowledge,  as  distinguished  from  opinion  (3  Suth. 
Dam.  supra  ;  Sterne  v.  Shaw,  supra  \  Nounnan  v. 
Land  Co.,  81  Cal.  1,  22  Pac.  515  ;  Williams  v.  McFad- 
den,  23F]a.  147,  1  South.  618;  Parker  r.  Moulton, 
114  Mass.  99). 

Precisely    what  conversation  occurred    between  the 
bank  officials  and   appellee    regarding   the   Crowls,  as 


414  UIvTRA  VIRES  [vol  I 

American  Nat.  Bank  of  Denver  v.  Hammond 

detailed    by  appellee   himself,    is  not  altog-ether  clear. 

He  says,  when  he  went  to  the  bank,  that  he 
E"id7nceT~       Wanted  to  know  if  the  Crowls  were  reliable 

men,  /.  e.  trustworthy.  It  nowhere  appears 
that  he  asked  any  questions  of  these  officers  reg-arding- 
the  solvency  or  responsibility  of  these  parties,  vi2. 
their  ability  to  pay  debts  or  means  of  pa3^ing-  obliga- 
tions they  mig-ht  incur.  He  also  states  that  he  told 
one  of  these  officers  that  he  came  to  inquire  about  the 
value  of  the  mining  stock,  and  the  response,  so  far  as 
it  related  to  the  Crowls,  was  to  the  effect  that  they 
were  all  right  in  a  business  way,  and  that  their  trans- 
actions with  the  bank  were  satisfactory  ;  that  to  the 
other  official  his  inquiries,  in  substance,  were  that  he 
had  been  referred  by  the  Crowls  to  the  bank  for 
information  as  to  their  financial  standing  and  the  value 
of  the  stock,  to  which  the  reply  with  reference  to  the 
Crowls  was  that  they  were  all  right,  or  that  he  would 
find  them  all  right,  and  that  the  bank's  business  deal- 
ing's with  them  had  been  satisfactory.  From  his  own 
statements,  it  is  apparent  that  the  information  he 
sought  related  to  the  mining- stock  particularly  ;  for  he 
sa3's,  after  this  last  conversation,  he  thanked  the  party 
with  whom  it  was  had  for  the  information  received, 
and  stated  to  him,  with  reference  to  the  mining  stock, 
that  it  was  information  he  could  rely  upon,  knowing 
the  bank  held  some  of  the  same  security,  and  later  in 
his  testimony  stated  that  he  did  not  deem  it  necessary 
to  make  any  inquiry  of  the  Crowls  about  what  prop- 
erty' they  owned,  because  he  thought  the  mining  stock 
was  sufficient,  after  the  information  regarding  it  was 
obtained  from  the  bank.  According  to  the  testimony 
of  appellee,  it  is  evident  that  no  statements  regarding 
the  solvency  of  the  Crowls  were  made  to  him  by  the 
bank  officers.  His  inquiries  on  this  subject  were  so 
vague  and  indefinite  that  it  is  impossible  to  ascertain 
what  information  he  was  seeking  in  this  respect;  and 
it  was  therefore  error  to  submit  this  question  to  the 
jury,  for  they  may  have  been  led  thereby  to  believe 
there  was  testimony  tending  to  prove  the  contention  of 


B  CAS]  ULTRA  VIRES  415 

American  Nat.  Bank  of  Denver  v.  Hammond 

appellee  that  he  had  been  falsely  informed  by  the  bank 
otBcers  reg^arding-  the  solvency  of  the  Growls.  Rail- 
road Co.  V.  Liehe,  17  Colo.  280,  29  Pac.  175;  Burlock 
-.'.  Cross,  16  Colo.  162,  26  Pac.  142.  Further,  if  he 
did  not  rely  upon  any  information  received  from  the 
bank  officers  reg-ardinof  the  solvency  of  the 
Crowls,  he  cannot  make  their  representa- 
tions in  this  respect  the  basis  of  an  action  for  damages, 
even  thoug^h  such  statements  may  not  have  been  true. 
2  Pom.  Eq.  Jur.  (2d  Ed.)  ^  890. 

With  reference  to  what  was  said  by  appellee  and  the 
bank  official  with  whom  he  talked  reg^arding-  the  mining- 
stock,  the  testimon}'  is  conflicting-,  but,  taking-  the 
version  of  appellee,  it  was  to  the  effect  that 
he  told  this  officer  that  he  came  there  to 
make  inquiries  about  this  stock  and  the  company;  that 
he  knew  the  bank  held  some  of  the  same  security,  and 
that  he  wanted  information  that  he  could  rely  upon; 
that  the  Crowls  were  strang-ers  to  him,  and  that  he 
did  not  propose  to  let  his  store  g-o  unless  satisfied  re- 
garding- the  security;  that  he  was  told  b}^  this  officer 
that  it  would  be  all  right,  and  that  the  number  of 
shares  he  proposed  to  take  oug-ht  to  be  ample  security 
for  the  amount  which  they  were  intended  to  secure; 
that  he  then  thanked  him  for  the  information,  and  said 
that  he  could  and  would  rely  upon  it.  The  value  of 
the  mining  stock  was  a  subject  upon  which  an  opinion 
could  be  expressed,  or  a  statement  made  as  a  matter  of 
fact.  In  the  light  of  all  the  circumstances  surrounding- 
the  transaction,  it  cannot  be  said,  as  a  matter  of  law, 
that  the  statements  of  the  bank  officer  reg-arding-  the 
stock,  as  detailed  by  appellee,  were  mere  expressions 
of  opinion  or  belief,  and  not  statements  of  fact,  or 
vice  versa;  and  this  question  should  have  been  submit- 
ted to  the  jury,  under  appropriate  instructions,  to 
determine  which  they  were,  from  all  the  evidence  in 
the  case. 

2.  Damag-es  are  limited  to  the  natural  and  proximate 
consequences  of  the  acts  complained  of  (2  Greenl.  Ev. 


416  POWERS  [vol  r 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

§  256);  and  those  results  are  proximate  which  the  party 
charg-ed  with  such  acts  must  have  contetn- 
Bama^el"*'"""*'  plated  as  the  probable  consequences  arising 
therefrom  (Crater  t-.  Binning-er,  33  N.  J. 
Law,  513).  If  the  facts  are  established  which  render 
the  appellant  liable;  it  can  only  be  called  upon  to  re- 
spond in  such  sum  as  equals  the  damagfes  which  appellee 
has  sustained  resulting-  from  the  acts  chargfed.  By 
the  acts  of  its  officers,  if  established  as  contended  by 
appellee,  appellant  has  obtained  his  property,  the 
natural  and  proximate  results  which  they  must  have 
contemplated  as  the  probable  consequences  of  their  acts 
in  the  premises;  and  the  bank  is  therefore  only  respon- 
sible to  him,  if  liable  at  all,  for  the  value  of  this  prop- 
erty at  the  time  of  its  transfer,  less  whatever  sum 
could  be  treated  as  a  payment  by  the  Growls  to  him 
and  the  value  of  the  mining"  stock  taken  as  security. 
Appellee  would  also  be  entitled  to  damag-es  in  a  sum 
equal  to  legfal  interest  on  such  balance.  Refining"  Co. 
V.  Tabor,  13  Colo.  41,  21  Pac.  925.  The  judgment  of 
the  district  court  is  reversed,  and  the  cause  remanded 
for  a  new  trial.      Reversed  and  remanded. 


AuTEN 

c'. 

United  States  Nat.  Bank  of  New  York. 

{Supreme  Court  of  the  United  States,  April  24,  i8gg.) 

National  Bank — Action  against  Receiver — Jurisdiction."*— Where  the 
action  is  ag^ainst  one  of  the  defendants  as  the  receiver  of  a  national 
bank  appointed  by  the  comptroller  of  the  currency,  it  is  ag'ainst  a 
federal  officer,  and  one  under  the  laws  of  the  United  States,  and 
federal  jurisdiction  cannot  depend  upon  diversity  of  citizenship. 

Banks  — Rediscounting  — Power  to  Borrow.* — The  very  object  of 
banking-  is  to  aid  the  operation  of  the  laws  of  commerce  by  serving-  as  a 
channel  for  carrying-  moncA'  from  place  to  place  as  the  rise  and  fall 
of  supply  and  demand  require,  and  this  may  be  done  by  rediscount- 


*See  notes  at  end  of  case. 


B  CAS]  POWERS  417 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

ing  the  bank's  paper,  or  by  some  other  form  of  borrowing-  ;  and  it 
cannot  be  held  as  matter  of  law  that  such  transactions  are  out  of 
the  usual  course  of  banking-  business,  and  charge  every  body  con- 
nected with  them  with  knowledge  that  they  may  be  in  excess  of 
authority. 

Negotiable  Notes — Title  of  Holder — Notice. — By  the  rule  that  an 
individual  negotiating  for  the  purchase  of  a  note  from  one  having- 
it  in  possession,  and  whose  name  is  upon  it,  must  assume  that  the 
title  of  the  holder,  as  well  as  the  liability  of  all  prior  parties,  is 
precisely  that  indicated  by  the  paper  itself,  it  is  not  meant  that 
circumstances  may  not  explain  the  note  or  may  not  relieve  the  taker 
from  the  obligation  of  inquiry. 

Same — Implied  Authority  of  President  to  Rediscount. — In  an  action 
against  the  receiver  of  an  Arkansas  bank  by  a  New  York  bank,  on 
certain  negotiable  notes,  it  appeared  that  the  notes  were  rediscounted 
and  delivered  to  plaintiff  by  the  president  of  the  Arkansas  bank,  and 
upon  each,  as  part  of  its  endorsement,  was  the  individual  signature 
of  the  president  followed  by  the  endorsement  of  the  bank  through 
its  president  ;  that  the  discounting  of  such  notes  was  one  of  many 
transactions  of  the  same  kind  between  the  banks,  and  was  not  other 
than  such  as  take  place  between  banks  carrying  on  a  legitimate  bank- 
ing business  ;  that  it  was  not  only  the  custom  of  the  Arkansas  bank 
to  rediscount  its  paper,  but  it  was  the  custom  of  other  banks  where 
it  was  located  to  do  so  ;  and  that  all  the  correspondence  between  the 
banks  in  regard  to  the  transaction  in  question  was  carried  on  by 
the  president,  except  its  beginning  and  the  acknowledgment  of  its 
close  by  accepting-  the  credit  which  had  been  created  by  the  trans- 
action for  the  Arkansas  bank,  which  was  through  the  Arkansas 
bank's  cashier,  who  it  was  conceded,  had  power  to  rediscount  its 
paper.  Held,  that,  in  judging  of  the  conduct  and  rights  of  plaintiff, 
the  question  was  not  what  actual  authority  the  president  had,  but 
what  appearance  of  authority  he  was  given  or  permitted  by  the 
bank's  directors  ;  and  that  a  verdict  was  properly  directed  for  plain- 
tiff. 

Set-Off.— Under  the  statute  of  Arkansas,  Gould,  Dig.  Ark.  p.  1020, 
§  5,  in  an  action  at  law  against  the  receiver  of  a  national  bank^ 
defendant  may  set  off  against  plaintiff's  demand  a  debt  due  the 
bank  by  plaintiff,  and  thereby  have  the  amount  due  plaintiff'  reduced. 

Error  by  defendant  to  the  United  States  Circuit 
Court  of  appeals  for  the  Eig-hth  Circuit.     Afflrvicd. 

Two  of  the  parties  to  this  action  in  the  court  below 
were  national  banks,  —one  located  at  New  York  ;  the 
other  located  at  Little  Rock,  Ark.  Sterling-  R.  Cock- 
rill,  as  receiver  of  the  latter  bank,  was  also 

,  TT  •  1  1       1     •        •  rr   •  Case  Stated. 

a  party.     He  resig^ned,  and  plaintm  m  error 
was   appointed.        The    banks    will    be    denominated, 
respectively,  the  "New  York    Bank"  and    the  "Little 
Rock  Bank." 

B  CAS— 27 


418  POWERS  '  [vol  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

The  complaint  contains  the  necessary  jurisdictional 
allegations,  and  that  "on  December  7,  1892,  the  City 
Electric  Street-Railway  Company, a  corporation  orjjfan- 
ized  and  doing-  business  under  the  laws  of  Arkansas, 
in  the  city  of  Little  Rock,  Arkansas,  executed  and 
delivered  to  G.  R.  Brown  and  H.  G.  Allis,  citizens  of 
the  state  of  Missouri,  its  three  promissor}'  notes,  each 
for  five  thousand  dollars,  payable  four  months  after 
date,  with  interest  at  the  rate  of  ten  per  cent,  per  an- 
num from  maturity  until  paid.  Said  Brown  and  Allis 
afterwards  indorsed  and  delivered  said  notes  to  the 
defendant.  First  National  Bank,  and  said  bank,  before 
maturity  and  for  a  valuable  consideration,  indorsed, 
rediscounted,  and  delivered  said  notes  to  plaintiif. 
That  on  December  7,  1892,  the  McCarthy  &  Joyce 
Company,  a  corporation  resident  in  the  city  of  Little 
Rock,  Pulaski  county,  Arkansas,  and  organized  and 
doing-  business  under  the  laws  of  Arkansas,  executed 
and  delivered  to  James  Joyce,  a  citizen  of  the  state  of 
Missouri,  its  two  promissory  notes,  each  for  five  thou- 
sand dollars, payable  to  his  order  at  four  and  five  months, 
respectively,  after  date,  with  interest  from  maturity  at 
the  rate  of  ten  per  cent,  per  annum  until  paid.  Said 
Joyce  afterwards  indorsed  said  notes  to  the  defendant. 
First  National  Bank,  and  said  bank,  before  maturity 
and  for  a  valuable  consideration,  indorsed,  rediscounted, 
and  delivered  said  notes  to  plaintiff.  Said  notes  were 
each  at  maturity  presented  at  the  First  National  Bank 
in  Little  Rock,  Arkansas,  for  payment,  and,  payment 
being-  refused,  they  were  each  duly  protested  for  non- 
payment; the  fees  for  which,  amounting-  to  twenty-five 
dollars,  were  paid  by  plaintiff.  Copies  of  said  notes, 
with  the  indorsements  thereon,  are  hereto  attached, 
marked  1  to  5,  inclusive,  and  made  part  heref)f.  No 
part  of  said  notes  has  been  paid,  and  the  same  have 
been  presented  to  the  receiver  of  said  bank  for  allow- 
a.nce.  which  he  has  refused  to  do." 

Judg-ment  was  prayed  for  the  debt  and   other  relief. 

Three  of  said  notes  are  in  the  followinef  form  : 


■B,  CAS]  POWERS  419 

Auteu  V.  U.  S.  Nat.  Bank  of  New  York 

"$5,000.  34,131. 

"Little  Rock,  Ark.,  Dec.  7th,  1892. 
"Four  months  after  date  we,  or  either  of  us,  promise 
to  pay  to  the  order  of  G.  R.  Brown  and  H.  G.  Allis 
five  thousand  dollars,  for  value  received,  negfotiable 
and  payable,  without  defalcation  or  discount,  at  the 
First  National  Bank  of  Little  Rock,  Arkansas,  with 
interest  from  maturity  at  the  rate  of  ten  per  cent,  per 
annum  until  paid. 

"City  Electric  St.  Rv.  Co. 
"H.  G.  Bradford,  Pt.' 
"W.  H.  Sutton,  Sec'y. 
"No.  A,  73,485.     Due  Apr.  7-10,  '93." 
The  following"  indorsement  appears  on  each:      "Geo. 
R.    Brown;  H.  G.  Allis;    First  National  Bank,  Little 
Rock,  Arkansas,  H.  G.  Allis,  Pt." 

Two  of  the  notes  were  in  the  following-  form  : 
"$5,000.  34,128. 

"Little  Rock,  Ark.,  Dec.  7,  1892. 
"Four  months  after  date  we,  or  either  of  us,  promise 
to  pay  to  the  order  of    James   Joyce  five  thousand  dol- 
lars, for  value  received,  neg-otiable  and  payable,  with- 
out defalcation  or  discount,  at  the  First  National  Bank 
of  Little  Rock,  Arkansas,  with  interest  from  maturity 
at  the  rate  of  ten  per  cent,  per  annum  until  paid. 
"McCarthy  &  Joyce  Co. 
"Geo.  Mandlebaum,  Secy.  &  Treas. 
"A,  73.477.     No.  2.     Due  Apl.  7-10,  '93." 
They  were   indorsed  as  follows:      "James  Joyce;  H. 
G.  Allis;  First  National  Bank,  Little  Rock  Ark.,  H.G. 
Allis,  Pt." 

The  receiver  only  answered,  and  his  answer,  as 
finally  amended,  denied  that  "either  of  the  notes  de- 
scribed in  the  plaintiiT's  complaint  was  ever  indorsed 
and  delivered  to  the  First  National  Bank;  he  denies 
that  either  of  said  notes  was  ever  the  property  of,  or 
in  the  possession  of ,  said  bank,  and  denies  that  the  said 
bank  ever  indorsed  or  delivered  either  of  said  notes  to 
the  plaintiff;  he  denies  that  said  bank  ever  received  any 
consideration  from  said    plaintiff  for  any  indorsement 


420  POWERS  [vol  3 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

or  delivery  of  said  notes  to  it";  and  averred  "that  the 
name  of  the  defendant  bank  was  indorsed  on  said  notes 
by  H.  G.  Allisfor  his  personal  benefit,  without  author- 
ity from  said  bank;  that  the  said  Allis,  assuming^  to 
act  for  defendant  bank,  procured  the  plaintiff  to  advance 
or  loan  upon  said  notes  a  larg-e  sum  of  money,  which 
he  appropriated  to  his  own  use  ;  that  said  Allis  had  no 
authority  from  said  bank  to  negotiate  said  loan  or  to 
act  for  it  in  any  way  in  said  transaction;  if  said  trans- 
action created  an  indebtedness  ag-ainst  the  defendant 
bank, then  the  total  liability  of  said  defendant  bank  to  the 
plaintiff  by  virtue  thereof  exceeded  one-tenth  of  the 
plaintiff's  capital  stock,  and  the  total  liability  of  the 
defendant  bank  thereby  exceeded  the  amount  of  its 
capital  stock  actually  paid  in;  that  the  plaintiff  know- 
ingly permitted  its  officers  to  make  such  excessive  loan 
under  the  circumstances  aforesaid;  that  the  transaction 
aforesaid  was  not  in  the  usual  course  of  banking  busi- 
ness, w^hich  either  the  plaintiff  or  the  defendant  bank 
was  authorized  to  carry  on;  that  the  plaintiff  is  not  an 
innocent  holder  of  either  of  said  notes;  that  the  defend- 
ant bank  received  no  benefit  from  said  transaction;  that 
it  had  no  knowledge  thereof  until  a  few  days  prior  to 
its  svispension;  that  no  notice  of  the  dishonor  of  said 
notes  was  ever  given  to  the  defendant  bank."  Also 
that  "at  the  date  of  the  suspension  of  the  First  National 
Bank  the  United  States  National  Bank  was  indebted 
to  it  in  the  sum  of  S-1-67.86,  that  sum  then  being  on  de- 
posit in  the  said  United  States  National  Bank  to  the 
credit  of  the  First  National  Bank  of  Little  Rock,  and 
that  the  same  has  never  been  paid." 

The  receiver  prayed  that  "he  be  discharged  from  all 
liability  upon  the  notes  sued  on  herein,  and  that  he 
have  judgment  against  the  plaintiff  for  the  said  sum  of 
$467.86,  and  interest  from  the  1st  dav  of  February, 
1893." 

The  plaintiff  bank  denied  the  indebtedness  of  $467.86, 
and  averred  "that  at  the  time  said  First  National  Bank 
failed  it  was  indebted  to  plaintiff  In  a  large  amount,  to 
wit,  the  notes  sued  upon  herein,  and  plaintiff  applied 
said  $467.86  as  a  credit  upon  said  indebtedness." 


B  CAS]  POWERS  421 

Auteii  V.  U.  S.  Nat.  Bank  of  New  York 

The  issues  thus  made  up  were  broug"ht  to  trial 
before  a  jury.  Upon  the  conclusion  of  the  testimony, 
the  court,  at  the  request  of  the  plaintiff  bank,  in- 
structed the  jury  to  find  a  verdict  for  it,  and  denied 
certain  instructions  requested  by  the  defendant.  The 
jury  found  for  the  plaintiff,  as  instructed,  for  the  full 
amount  of  the  notes  sued,  less  the  amount  of  the  set-off, 
and  judgfment  was  entered  in  accordance  therewith. 

A  writ  of  error  was  sued  out  to  the  circuit  court  of 
appeals,  which  affirmed  the  judg^ment,  and  the  case  was 
broug-ht  here. 

There  had  been  two  other  trials,  the  rulincrs  in 
which  and  the  action  of  the  circuit  court  of  appeals  are 
reported  in  27  U.  S.  App.  605.  13  C.  C.  A.  472,  and 
6+  Fed.  985,  and  49  U.  S.  App.  67,  24  C.  C.  A.  597,  and 
79. Fed.  296. 

The  defendant  assig^ns  as  error  the  action  of  the  cir- 
cuit court  in  instructing  the  jur}'  to  find  for  the  plain- 
tiif  bank,  and  in  refusing  the  instructions  requested  by 
the  defendant.  The  latter  were  19  in  number,  and 
present  every  aspect  of  the  defendant's  defense  and 
contentions.  The}'  are  necessarily  invc^lved  in  the 
consideration  of  the  peremptor}'  instruction  of  the 
court,  and  their  explicit  statement  is  therefore  not 
necessary. 

The  evidence  shows  that  the  New  York  bank 
solicited  the  business  of  the  Little  Rock  bank  by  a 
letter  written  by  its  second  assistant  cashier,  directed 
to  the  cashier  of  the  Little  Rock  bank,  and  dated  June 
21,  1892. 

Among-  other  things,  the  letter  stated  :  "If  you 
will  send  on  $50,000  of  your  gfood,  short-time,  well- 
rated  bills  receivable,  we  will  be  pleased  to  place  them 
to  your  credit  at  4  per  cent." 

The  reply  from  the  Little  Rock  bank  came,  not 
from  its  cashier,  but  from  its  president,  H.  G.  Allis, 
who  accepted  the  offer,  and  inclosed  notes  amounting- 
to  $50,728,  among-  which  were  three  of  the  City 
Klectric  Railway  Company,  the  maker  of  three  of  the 
notes    in   controversy.       When   first   forwarded,   they 


4!22  POWERS  [vol,  t 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

vvere  not  indorsed,  and  had  to  be  returned  for  indorse- 
ment. They  were  .indorsed,  and  the  letter  returning- 
them  was  sig-ned  by  Allis.  To  the  letter  forwarding 
them  the  New  York  bank  replied  as  follows: 

"New  York,  June  27th,  1892. 

"H.  G.  Allis,  Esq.,  President,  Little  Rock,  Ark.— 
Dear  Sir  :  We  have  this  day  discounted  the  follow- 
m<r  notes  contained  in  favor  of  the  24th  inst.,  and  pro- 
ceeds of  same  placed  to  your  credit." 

The  notes  were  enumerated,  their  amounts  calcu- 
lated and  footed  up.  and  discount  at  4  per  cent, 
deducted,  and  the  proceeds,  amounting*  to  $50,216.48, 
placed  to  the  credit  of  the  Little  Rock  bank. 

On  July  6,  1892,  the  following-  teleg-rams  were 
exchang-ed: 

"New  York,  July  6th,  1892. 

"First  National  Bank,  Little  Rock,  Ark.:  Will 
give  you  additional  fifty  thousand  on  short-time,  well- 
rated  bills,  discounted  at  five  per  cent.  Money  rates 
are  little  firmer.     Answer,  if  wanted. 

U.  S.  Nat.  Bank." 
"Little  Rock,  Ark.,  July  6,  1892. 

"United  States  Nat.  Bank,  N.  Y.:  We  can  use  fifty 
thousand  additional  at  five  per  cent.  Will  send  bills 
to-morrow. 

"First  Nat.  Bank." 

In  accordance  with  the  proposition  thus  made  and 
accepted,  H.  G.  Allis,  as  president,  wrote  on  the  9th 
of  July,  1892,  to  the  New  York  bank  a  letter,  inclos- 
ing- what  he  denominated  "prime  paper,  amounting- to 
$50,301.88,"  and  requested  proceeds  to-be  placed  "to 
our  credit,  and  advise."  These  notes  were  discounted 
and  acknowledg-ed.  Their  proceeds,  less  discount, 
amounted  to  $49.h41.68. 

On  July  26,  1892,  the  New  York  bank   telegfraphed: 
"New  York,  July  26th,  1892. 

"First  National  Bank,  Little  Rock,  Ark.:  Can 
take  fifty  thousand  more  of  your  well-rated  bills,  dis- 
counted at  five  per  cent. 

"U.  S.  Nat.  Bank." 


Jl 


B  CAS]  POWERS  423 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

To  this  H.  G,  Allis,  as  president,  answered  as 
follows: 

"Little  Rock,  Ark.,  July  29,  1892.     ■ 

"United  States  N.itional  Bank,  New  York  City — 
Gentlemen:  Your  ttlt-g-ram  of  the  26th,  sayinof  you 
could  take  $50,000  more  short-time,  well-rated  paper, 
I  placed  before  our  board  to-day. 

"While  it  is  two  weeks  earlier  than  we   need    it.  on 
account   of  the  rate  we  will  take  it  now.  and  I  inclose 
herein  paper  as  listed  below  ;  amount,  $50,089.93. 
"Yours,  very  truly,  H.  G.  Allis,  President. 

"We  hold  collaterals  subject  to  your  order;  see 
(pencil)  notations  on  paper  for  rating-. 

"H.  G.  Allis,  Pr." 

In  the  list  of  notes  were  two  by  the  city  E^Kctric 
Street-Rail  way  Company  and  two  by  the  McCarthy 
&  Joyce  Company,  who  were  the  makers  of  two  of 
the  notes  in  controversy.  There  was  one  by  N. 
Kupferle  for  $5,000,  "due  Nov.  8,  1892."  The 
significance  of  this  will  be  stated  hereafter. 

These  notes  were  discounted,  and  the  fact  com- 
municated to  H.  G.  Allis,  E^sq.,  president,  Little  Rock, 
Ark. 

The  next  letter  contains  notes  for  discount  fr^m  the 
Little  Rock  bank,  sent  by  its  cashier,  W.  C.  Denney. 
The  proceeds  amounted  to  $24,413.05,  acknowledg-- 
raent  of  which   was  made. 

The  next  communication  was  about  the  notes  in 
controversy.  It  was  dated  November  25,  1892,  and 
was  sig-ned  by  W.  C.  Denney,  cashier.  The  letter, 
however,  inclosing-  the  notes,  was  sent  by  H.  G.  Allis, 
as  president.      The  correspondence  is  as  follows  : 

"The  First  National  Bank  of  Little  Rock,   Ark. 

"Nov.  25,  1892. 

"United  States  National  Bank,  New  York  City — 
Gentlemen  :  Kindl}^  advise  us  if  you  can  g-ive  us 
$25,000  more  in  discounts.  We  have  not  decided 
whether  we  will  make  further  discounts  this  year, 
althoug-h  it  is  more  than  probable  that  we  will  have  to, 
as  our  cotton  men  do  not  want  to  sell  at  present. 


424  POWERS  [vol,  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

"We  believe  the  advance  in  price  will  cover  shortage 
of  crop,  and  that  our  collections  will  be  equal  to  those 
of  last  year.  If  our  cotton  men  continue  to  hold  their 
cotton,  it  will  be  necessary  for  us  to  make  further 
rediscounts,  and  we  want  to  know  what  we  can  do 
in  case  they  refuse  to  sell. 

"If  you  can  g-rant  us  this  favor,  kindly  let  us  know 
what  rate  of  interest  you  will  want.  Your  immediate 
reply  is  requested. 

"Yours,  very  truly,  W.  C.  Denney,  Cashier." 
"New  York,  Nov.  28,  1892. 

"Mr.  W.  C.  Denney,  Cashier,  Little  Rock,  Ark.— 
Dear  Sir  :     Yours  of  the  25th  is  to  hand. 

"We  will  ofive  you  the  additional  discounts  as 
requested.  You  may  send  on  your  paper,  and  we  will 
put  same  to  your  credit  at  6%. 

"Yours,  very  truly,  H.  C.  Hopkins,  Cashier." 
"Little  Rock,  Ark.,  Dec.  13,  1892. 

"United  States  Nat.  Bank,  New  York  City— Gen- 
tlemen :  In  accordance  with  our  letter  of  the  25th 
ult.,  and  your  reply  of  the  28th  ult.,  we  find  that  we 
shall  need  some  more  money,  as  our  cotton  men  are 
not  shipping-  out  any  cotton.  It  seems  to  be  the 
inclination  of  all  of  them  to  hold  for  a  better  price, 
and  we  are  now  carrying-  $175,000  in  demand  loans  on 
cotton,  which  we  may  have  to  carry  tw^o  or  three 
months  longer. 

"We  inclose  herein  paper  as  scheduled  below. 
Kindly  wire  us  proceeds  to  our  credit,  and  oblige, 

"Yours,  very  truly,  H.  G.  Allis,  President. 

Dickenson  Hardware  Co.,  due  March  3 $2,500  00 

Dickenson  Hardware  Co.,  due  April  6 5,000  00 

City  Electric  St.  Ry.  Co.,  due  April  10 5,000  00 

City  Electric  St.  Ry.  Co.,  due  April  10 5,000  00 

City  Electric  St.  Ry.  Co.,  due  April  10 5,000  00 

McCarthy  &  Joyce  Co.,  due  May  10 5,000  00 

McCarthy  &  Joyce  Co.,  due  April  10 5,000  00 

S32,500  00 

"We  hold  all  collaterals  recited  subject  to  your  order 
and  for  your  account." 


B  CAS]  POWERS  425 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

"New  York,   Dec.  16th,   1892. 
"H.    G.   Allis,    Esq.,  Prest.,    Little  Rock,   Ark.— 
Dear  Sir  :     We  have  this  day  discounted  the  following- 
notes  contained  in    your  favor  of  the    13th  inst..   and 
proceeds  of  same  placed  to  your  credit  : 


do                  do                     " 
City  Electric  St.  Ry.  Co.      " 

Apl.  6, 
"  10, 
"  10, 
"  10, 
"     10, 

May  10, 

'93 . .  . 

....   5,000, 
5,000, 

73 

92  SO 
95  83 

5,000, 

95  83 

do            do 

McCarthy  &  Joyce  Co. 

do            do 

....   5,000, 
5,000, 

95  83 
95  83 

....   5,000, 

'      120  83 

Amount  of  notes 

^  .  $32,500 

Less  discount  at  6  per  cent. . 

628 

Proceeds .  .  . 

.  . .  .S31.  871 

27 

"We  inclose  herewith  note  of  Dickenson  Hardware 
Co.  $5,000,  due  Apl.  6th,  for  insertion  of  amount  in 
body,  and  return  to  us. 

"Yours,   truly, 

*'Jno.  J.   McAuliffe,  Asst,  Cashier." 
"New  York,  December  17,  1892. 
"First  National  Bank,  Little  Rock,  Arkansas:  Let- 
ter thirteen  received  notes  discounted  proceeds  credited 
account. 

"United  States  National  Bank." 
"The  First  National  Bank  of  Little  Rock,  Ark. 

"Dec.  20,  1892. 
"United  States  National  Bank,    New    York    City- 
Gentlemen  :     We  have  your  favor  of    the  16th  inst., 
inclosing-  the  Dickenson  Hardware  Company  note  for 
completion,  which  we  herewith  return. 

"We  charg-e  vour  account  with  $31,871.27,  proceeds 
of  $32,500.00  of  discounts. 

"Yours,  very  trul^',   W.  C.  Denney,  Cashier." 
In  the  subsequent  correspondence  Allis  takes  part 
but  once,  and  sent  the  following-  teleg-ram,  December 
21,  1892: 

"Little  Rock,  Ark.,  Dec.  21,  1892. 
"U.    S.    Natl.    Bank,    N.    Y.  :     Can    you    discount 
thirty    thousand    country    banks'    paper    secured     by 


426  POWERS  [vol  I 

Auteu  V.  U.  S.  Nat.  Bank  of  New  York 

cotton    thirty    days  no    renewal  desire  to    carry    over 
holidays  answer  day  messao-e. 

"H.  G.  Allis,  President." 

Henry  C.  Hopkins,  cashier  of  the  New  York  bank, 
was  called  as  a  witness  in  its  behalf,  and,  after 
explaininor  the  letters  and  teleg'ranis  which  were  sent 
by  the  banks,  and  the  transactions  which  they  detailed, 
testified  that  the  dealing's  between  the  banks  were  such 
as  take  place  between  banks  carrying-  on  legitimate 
banking-  business,  in  the  usual  course  of  business,  and 
that  the  notes  were  not  discounted  in  any  other  vvay, 
and  that  the  bank  had  no  notice  or  intimation  that  the 
notes  had  not  been  regularly  received  by  the  First 
National  Bank,  or  offered  bv  it  in  the  reg-ular  course  of 
business,  or  for  the  benefit  of  any  person  other  than 
the  bank,  or  interested  in  the  proceeds  ;  and  that  the 
United  States  National  Bank,  in  its  correspondence 
and  dealings,  did  not  recog-nize  H.  G.  Allis,  W.  C. 
Denney,  or  S.  S.  Smith  personally  or  in  any  capacit}- 
than  as  representing-  the  First  National  Bank  ;  and 
that  the  transactions  were  solely  with  the  First  Na- 
tional Bank  ;  and  that  the  correspondence  and  trans- 
actions were  usual  for  the  president  and  cashier  of  a 
United  States  national  bank  to  carry  on  ;  and  that  the 
proceeds  of  the  various  discounted  notes  were  with- 
drawn by  the  Little  Rock  bank  in  the  regfular  course 
of  business  by  its  officers. 

There  was  a  detailed  statement  of  the  transactions 
between  the  banks  attached  to  Hopkins'  deposition, 
which  is  not  in  the  record,  but  instead  thereof  there 
appears  the  following  : 

"The  account  current  here  referred  to  began  June  27, 
1892,  and  continued  until  the  suspension  of  business 
of  the  First  National  Bank.  It  shows  almost  daily  en- 
tries of  debit  and  credit.  It  shows  that  the  several 
notes  discounted  by  the  United  States  National  Bank, 
and  referred  to  in  the  depositions  of  the  officers  of  that 
bank,  being-  forty-nine  in  number,  were  charged  ag-ainst 
the  account  of  the  First  National  Bank  by  the  United 
States  National  Bank  at  the  several  dates  of  their  ma- 


B  CAS]  POWERS  427 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

turity.  In  two-thirds  of  the  instances  where  such 
charg-es  were  made  the  balance  to  the  credit  of  the  First 
National  Bank  on  the  hooks  of  the  United  States 
National  Bank  was  sufficient  to  cover  the  charg-e.  In 
other  instances  the  balance  to  the  credit  of  the  First 
National  Bank  was  insufficient  to  raeetthe  charge  at  the 
time  of  the  entry,  and  in  the  other  instances  the  account 
of  the  First  National  Bank  was  in  overdraft,  as  shown 
by  the  books  of  the  United  States  National  Bank  at  the 
time  the  charge  was  made. 

"The  account  shows  that  at  the  time  of  the  suspen- 
sion of  the  First  National  Bank  the  latter  bank  had  a 
credit  of  $467.86  upon  the  books  of  the  United  States 
National  Bank.  Against  this  balance  the  rotes  in  suit, 
with  protest  fees,  were  charged  on  the  account  April 
17  and  May  15,  1893,  making  the  account  show  a  bal- 
ance in  favor  of  the  United  States  National  Bank  of 
$24,558.03. 

"This  is  the  paper  marked  '77,'  referred  to  in  the 
depositions  of  Henry  C.  Hopkins,  James  H.  Parker, 
Joseph  W.  Harriman,  and  John  J.  McAuliife,  hereto 
annexed." 

The  record  also  shows  that  "J.  H.  Parker,  president, 
Joseph  W.  Harriman,  second  assistant  cashier,  and 
John  J.  McAuliffe,  assistant  cashier,  each  testified  to 
identically  the  same  facts  in  the  identical  lang-uage  as 
Henry  C.  Hopkins,  and  it  is  agreed  that  the  depositions 
of  Hopkins  shall  be  treated  as  the  deposition  of  each  of 
the  said  witnesses,  without  the  necessity  of  copying* 
the  deposition  of  each  witness." 

There  was  proof  made  of  the  protest  of  the  notes. 

There  was  testimony  on  the  part  of  the  plaintiff  show- 
ing- that  it  was  the  custom  of  the  banks  at  Little  Rock 
to  rediscount,  through  their  presidents  and  cashiers, 
until  after  a  decision  in  the  National  Bank  Case  of  Cin- 
cinnati, in  January,  1893.  After  that  it  was  done  by 
resolution  of  the  board  of  directors,  and  the  banks  of 
New  York  and  other  commercial  cities  commonly  re- 
quire that  now. 

By  a  witness  who  was  cashier  of  the  Little  Rock 


428  POWERS  [vol  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

bank  from  November,  1890  to  October,  1891,  Allis  then 
being-  president,  it  was  shown  that  it  was  the  custom 
of  the  bank,  as  to  rediscounting-  notes,  for  the  cashier 
or  assistant  cashier  tc.  refer  them  to  the  president,  and 
the  president  g-enerally  directed  what  amount  and  where 
to  send  them.  Whether  they  were  referred  to  the 
board  of  directors,  the  witness  was  unable  to  say. 

On  cross-examination  the  witness  testified  that,  when 
the  discounts  were  determined  on,  the  cashier  or  assist- 
ant cashier  transacted  the  business.  He,  however, 
only  remembered  sending-  oflF  one  lot  of  discounts  ;  Mr. 
Ddnny,  the  assistant  cashier,  usually  car  rying  on  the 
correspondence.  He  did  not  remember  that  the  presi- 
dent ever  did  anything-  of  that  kind,  "Kither  Mr. 
Denney  or  I  would  say  to  him  that  something-  of  the 
kind  was  needed,  and  he  would  direct  the  quantity  and 
what  correspondents  usually  to  send  to." 

There  were  introduced  in  evidence  "the  reports  or 
statements  by  the  bank  to  the  comptroller  of  the  cur- 
rency, showing  the  rediscount  and  business  of  the  bank, 
of  date  May  17,  1892,  and  July  12,  1892,  as  follows  : 
The  report  of  May  17th  was  sworn  to  by  W.  C.  Den- 
ney, cashier,  and  attested  by  James  Joyce,  E^.  J.  But- 
ler, and  H.  G.  Allis,  directors,  and  showed,  'Notes 
and  bills  rediscounted,  616,132.40.'  The  report  of 
July  12th  was  sworn  to  by  H.  G.  Allis,  president,  and 
attested  by  Charles  T,  Abeles,  E,  J.  Butler,  and  John 
W.  Goodwin,  directors,  and  showed,  'Notes  and  bills 
rediscounted,   S81, 748,80,'" 

The  testimony  on  the  part  of  the  plaintiff  in  error 
showed  (we  quote  from  brief  of  defendant  in  error) 
that  "the  notes  never  belong-ed  to  the  First  National 
Bank  ;  that  the  three  notes  of  the  Electric  Street-Rail- 
way  Company  were  executed  to  Brown  and  Allis  for 
accommodation  of  Allis,  and  the  two  notes  of  McCarthy 
&  Joyce  Company  were  executed  and  delivered  to  Allis 
for  the  purpose  of  raising-  money  for  the  Company,  to 
be  placed  to  its  credit  with  the  First  National  Bank, 
to  which  McCarthy  «&  Joyce  Company  was  indebted  ; 
that  neither  of  the  notes  w^as  ever  passed  upon  by  the 


II 


B  CAS]  POWERS  429 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

discount  board  of  the  bank,  or  appeared  on  the  books 
of  the  bank  ;  that,  after  the  bank  was  notified  that  the 
notes  had  been  discounted  and  placed  to  its  credit,  Allis 
directed  the  proceeds  of  the  notes  ($25,000)  to  be  placed 
to  his  credit  on  the  books  of  the  bank,  at  which  time 
there  was  an  overdraft  ag-ainst  him  of  $10,679.44  ;  that 
Allis  was  atthat  time  indebted  to  the  Little  Rock  bank 
on  individual  notes  for  at  least  $50,000,  and  was  con- 
tinuously thereafter  indebted  to  the  bank  until  its  fail- 
ure. 

As  to  the  power  of  the  president  to  direct  rediscounts 
or  to  indorse  the  notes  of  the  bank,  E).  J.  Butler,  N. 
Kupferle,  and  C.  T.  Abeles,  who  were  directors  of 
the  bank  at  the  time  of  the  transactions  between  it  and 
the  New  York  bank,  testified,  respectively,  as  follows: 

"Butler  :  Was  a  pretty  regular  attendant  at  the 
board  meetings,  during-  the  year, — at  nearly  all  the 
meetino-s. 

"Q.  Did  Mr.  Allis  have  authority  to  discount  notes 
for  the  bank  or  to  rediscount  them  ? 

"A.  Never  that  I  knew  of.  I  knew  that  when  Col- 
onel Roots  was  president  he  asked  and  received 
authority  from  the  board  to  make  rediscounts,  but  I  do 
not  know  that  Mr.  Allis  ever  asked,  and  the  board, 
when  I  was  present —  He  never  was  given  any  author- 
ity to  make  rediscounts  for  the  bank. 

"Q.  Did  he  have  authority  from  the  bank  to  indorse 
its  papers  for  rediscount? 

"A.   No,  sir  ;  never  that  I  was  aware  of." 

On  cross-examination  he  testified  that  he  did  not  rec- 
ollect Allis  asking  for  authority ;  that  the  question  never 
came  before  the  board  as  to  discounts.  He  knew  that 
there  were  discounts  made,  but  did  not  recollect  any 
particular  ones,  but  in  case  there  were  he  would  sup- 
pose they  were  on  the  authority  of  the  board,  given  in 
his  absence,  but  did  not  remember  that  the  question 
was  brought  up  at  all. 

"Q.  There  are  a  couple  of  statements  made  by  the 
bank  (being  the  statements  heretofore  introduced  by 
the  plaintiff)  of  May  17,   1892,  and  July   12,   1892,  to 


430  POWERS  [vol,  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

which  you  as  a  director  certify,  which  show, — one  of 
May  17  shows  rediscounts,  $16,172.40,  and  the  one  of 
July  12,  1892,  shows  rediscounts,  $81,748.88.  Did  you 
sigfn  these  ? 

"A.  I  couldn't  say,  without  referring  to  the  orig-inal 
reports. 

"Q.   These  are  the   published  reports,  are  they  not? 

"A..  They  purport  to  be  the  published  report  but  I 
do  not  know  anything-  about  it.  I  was  one  of  the 
directors  at  that  time. 

"Q.  That  is  one  of  the  usual  forms  of  the  reports 
published  in  the  papers,  isn't  it  ? 

"A.   Yes,  sir. 

"Q.  You  now  tell  the  jury  that  you  do  not  know 
anythinof  about  the  extent  of  rediscounts  made  by  it? 

"A.   No,  sir  ;  I  cannot  remember." 

Mr.  Denney  was  cashier  in  1892,  and  he  supposed 
that  Denney  transacted  the  business  as  to  indorsements 
and  rediscounting",  but  did  not  know  and  did  not  recol- 
lect that  Allis  did.  Did  not  hear  of  him  indorsing  the 
notes  in  suit  until  after  the  bank  failed. 

"Kupferle  :  Mr.  Allis  did  not  have  the  power  from 
the  board  of  directors  of  the  bank  to  indorse  its  paper 
for  rediscount." 

Cross-examination  :  "There  was  nothing  said  in  the 
board  about  such  power.  The  question  was  not  brought 
before  the  board.  The  bank  during  that  time  redis- 
counted  paper.  The  cashier  generally  attended  to 
that.  I  knew  that  the  bank  was  discounting  paper.  I 
recall  once  where  the  president  requested  of  the  board 
that  the  bank  should  borrow  some  money.  That  was 
in  the  fall  of  1892.  I  knew  that  the  bank  had  been 
discounting  paper  long-  before  that,  and  borrowing 
money  before  that,  and  no  authority  had  been  asked  of 
the  board  to  do  it.  I  knew  that  they  were  borrowing 
money  and  rediscounting  paper  continually," 

Redirect  :  "We  had  eleven  or  thirteen  members  of 
the  board  of  directors  ;  I  forget  which.  Never  less 
than  eight  or  nine.  There  was  seldom  a  meeting  when 
all  were  present, — a  majority  present. 


B  CAS]  POWERS  431 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

"Q.  Did  they  at  any  time  rediscount  or  authorize 
the  rediscountingf  of  paper  ?  Did  they  have  that  au- 
thority? 

"A.  No,  sir  ;  that  was  not  their  business. 
"Q.  Theirs  was  to  discount  paper  for  customers   of 
the  banks  ? 

"A.   The  daily  offering's  ;  yes,  sir." 
Did  not  know  of  Mr.  Allis  indorsing-  the  name  of  the 
bank  upon  the  paper  for    the  purpose  of  rediscountingf 
it. 

"Q.   Did  you,  as  a  member  of  the  board  of  directors, 
or  otherwise,  have  any  information  that  Mr.  Allis  was 
using-  the  name  of  the  bank  upon  his  or  other  people's 
paper,  for  accommodation? 
"A.   No,  sir  ;  I  never  did." 
Cross-examination : 

"Q.   You  didn't  know  that  he  was  using-  the  name  of 
the  bank  on  the  bank's  paper  ? 
"A.   No,   sir. 

"Q.  You  knew  he  was  discounting-  paper? 
"A.  No,  sir  ;  it  was  not  his  place. 
"Q.   Didn't   the  correspondence  there  show  he   was 
sending-  the  paper  for  discount  all  over  the  country  ? 
"A.   No,  sir  ;  I  don't  know  anything  about  that. 
"Q.   Wasn't  it  your  business  to  know  it  ? 
"A.  I  do  not  know. 

"Q.   You  was  vice  president  and  one  of  the  directors? 
"A.   Yes,  sir  ;  I   never  knew  anything-  about  it  until 
the  failure  of  the  bank, — that  he  ever  used  the  bank's 
name." 

"Abeles  :  Not  while  I  was  there  [at  the  meetings  of 
the  board]  was  authority  given  to  Allis,  as  president, 
to  indorse  or  rediscount  the  nates  of  the  bank.  I  do 
not  think  it  was  ever  mentioned.  I  knew  of  the  bank 
rediscounting  paper,  and  somebody  was  transacting 
that  part  of  the  business.  I  think  I  inquired  of  some 
of  the  directors  who  it  was,  and  was  told  that  the 
authority  vested  in  the  cashier.  I  do  not  recollect  that 
I  inquired  of  Allis  or  Denney." 

"Cohn  :  Was  not  a  director  in   1892, — was  for  ten 


432  POWERS  [vol  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

years  prior  to  that  time, — aad  Allis  was  president  in 
1891,  but  did  not  recollect  that  he  had  authority  from 
the  board  to  indorse  its  paper  or  to  rediscount  it." 

Cross-examination  :  "Knew  that  rediscounting-  was 
being-  done,  but  supposed  it  was  being-  done  by  the 
cashier, — didn't  stop  to  inquire." 

Redirect  : 

"Q.  Who  was  authorized  in  the  bank  to  perform 
that  duty  ? 

"A.  I  understood  the  cashier." 

Cross-examination : 

"Q.   How  was  he  authorized  ? 

"A.   By  law. 

"Q.   You  are  simply  giving  your  leg"al  opinion  ? 

"A.   Well,  I  understood  that  was  his  authority." 

Other  facts  are  stated  in  the  opinion  of  the  court. 

Upon  filing"  the  record,  the  defendant  in  error  made 
a  motion  to  dismiss,  which  was  postponed  for  the  con- 
sideration of  the  merits. 

Sterlino-  R.  Cockrill,  for  plaintiff  in  error. 
Jo/ni  Fletcher,  for  defendant  in  error. 

Mr.  Justice  McKenna,  after  making  the  above 
statement,  delivered  the  opinion  of  the  court. 

1.  To  sustain  the  motion  to  dismiss,  it  is  contended 
that  the  jurisdiction  of  the  case  depends  on  the  diver- 
sity of  citizenship,  and  hence  that  the  judg-ment  of  the 
circuit  court  of  appeals  is  final.  But  one  of 
iction*?rui"t"  the  defendants  (plaintiff  in  error),  though  a 
jorUdTctioii  citizen  of  a  different  state  from  the  plaintiff 

in  the  action  (defendant  in  error),  is  also  a 
receiver  of  a  national  bank  appointed  by  the  comptroller 
of  the  currency,  and  is  an  officer  of  the  United  States, 
and  an  action  ag-ainst  him  is  one  arising"  under  the 
laws  of  the  United  States.  Kennedy  v.  Gibson,  8 
Wall.  498  ;  In  re  Chetwood,  165  U.  S.  443,  17  Sup. 
Ct.  385;  Sonnentheil  v.  Brewing-  Co.,  172  U.  S.  401, 
19  Sup.  Ct.  233.  It  is,  however,  urged  that  such  ap- 
pointment was  not  shown.   It  was  not  explicitly  alleged. 


il 


B  CAS]  POWERS  433 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

but  we  think  that  it  sufficiently  appeared,  and  the 
motion  to  dismiss  is  denied. 

2.  Afjainst  the  correctness  of  the  action  of  the  circuit 
court  in  instructing-  a  verdict  for  the  New  York  bank, 
it  is  ur^ed  that  the  discounting-  of  the  notes  in  contro- 
versy was  for  the  personal  benefit  of  Allis,  and  that 
the  New  York  bank  was  charg-ed  with  notice  of  it 
because  of  the  nature  of  the  transaction,  the  form  of 
the  notes,  and  the  order  of  the  indorsements,  and  also 
because  notice  was  a  question  of  fact  to  be  decided  by 
the  jury  on  the  evidence. 

It  is  also  contended  that  the  receiver  was  entitled  to 
a  judgment  on  the  set-off.  We  will  examine  each  of 
the  propositions. 

1.  The  argument  to  sustain  this  is  that  the  facts 
detailed  constitute  borrowing  money,  and  that  borrow- 
ing is  out  of  the  usual  course  of  legitimate  banking- 
business  ;  and  one  who  loans  must,  at  his  peril,  see 
that  the  officer  or  agent  who  offers  to  borrow  for  a 
bank  has  special  authority  to  do  so.  But  is  borrowing* 
out  of  the  usual  course  of  legitimate  banking  business? 

Banking  in  much,  if  not  in  the  greater  part,  of  its. 
practice,  is  in  strict  sense  borrowing,  and  we  may 
well  hesitate  to  condemn  it  as  illegitimate,  or  regard  it 
as  out  of  the  course  of  regular  business,  and  hence 
suspicious  and  questionable.  "A  bank,"  says  Morse 
(Banks,.  §  2),  "is  an  institution,  usually  incorporated 
with  power  to  issue  its  promissory  notes  intended  to 
circulate  as  money  (known  as  bank  notes);  or  to 
receive  the  money  of  others  on  general  deposit,  to 
form  a  joint  fund  that  shall  be  used  by  the  institution, 
for  its  own  benefit,  for  one  or  more  of  the  purposes  of 
making  temporary  loans  and  discounts;  of  dealing  in 
notes,  foreign  and  domestic  bills  of  exchange,  coin, 
bullion,  credits,  and  the  remission  of  money;  or  with 
both  these  powers,  and  with  the  privileges,  in  addition 
to  these  basic  powers,  of  receiving  special  deposits  and 
making  collections  for  the  holders  of  negotiable  paper, 
if  the  institution    sees  fit  to  engage  in  such  business.'* 

This   defines   the    functions.     What    relations    are 

B  CAS- -28 


434  POWERS  [vol  I 

Auten  ?'.  U.  S.  Nat.  Bank  of  New  York 

created    by    them?     Manifest!}',    those    of  debtor  and 
creditor;  the  bank  beinof  as  often    the  one  as  the  other. 

A  "banker,"  Macleod  says,  is  a  trader  who  buys 
money,  or  money  and  debts,  by  creating-  other  debts, 
which  he  does  with  his  credit, — exchanjritio-  for  a 
debt  payable  in  the  future  one  payable  on  demand. 
This,  he  says,  is  the  essential  definition  of  "banking-." 
*'The  first  business  of  a  banker  is  not  to  lend  money 
to  others,  but  to  collect  money  from  others."  1  Macleod, 
Binkino-  (2d  Ed.)  pp.  109,  110.  And  Gilbart  defines 
a  banker  to  be  "a  dealer  in  capital,  or,  more  properly, 
a  dealer  in  money.  He  is  an  intermediate  party 
between  the  borrower  and  the  lender.  He  borrows  of 
one  party  and  lends  to  another."     1  Gilb.   Bank.  p.  2. 

The  very  first  banking-  in  England  was  pure  bor- 
rowing-. It  consisted  in  receiving- money,  in  exchang-e, 
for  which  promissory  notes  were  g"iven,  payable  to 
bearer  on  demand;  and  so  essentially  was  this  banking, 
as  then  understood,  that  the  monopol}^  given  to  the 
Bink  of  Eng-land  was  secured  by  prohibiting-  any 
partnership  of  more  than  six  persons  "to  borrow,  owe, 
or  take  up  any  sum  or  sums  of  money  on  their  bills 
or  notes  payable  at  demand."  And  it  had  effect  until 
1772  (about  30  years),  when  the  monopoly  was  invaded 
by  the  introduction  of  the  deposit  system.  The 
relations  created  are  the  same  as  those  created  by  the 
issue  of  notes.  In  both  a  debt  is  created;  the  evidence 
only  is  different.  In  one  case  it  is  a  credit  on  the 
banker's  books;  in  the  other,  his  written  promise 
to  pay.  In  the  one  case  he  discharg-es  it  by  paying- 
the  orders  (checks)  of  his  creditor;  in  the  other,  by 
redeeming  his  promises.  These  are  the  only  diifer- 
■ences.  There  may  be  others  of  advantage  and  ultimate 
^effect,  but  with  them  we  are  not  concerned. 

But  it  may  be- said  these  views  are  elementary,  and 
do  not  help  to  a  solution  of  the  question  presented  by 
the  record,  which  is  not  what  relation  a  bank  has,  or 
what  power  its  officers  may  be  considered  as  having, 
in  its  transactions  with  the  g-eneral  public,  but  what 
'js   its  relation,   and    what   power    its  officers   may    be 


B  CAS]  POWERS  435 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

considered  as  having-,  in  its  transactions  with  other 
banks.  Indetd,  the  question  may  be  even  narrower, 
— not  one  of  power,  but  one  of  evidence.  If  so,  the 
views  expressed  are  pertinent.  They  show  the  basis 
of  credit  upon  which  banks  rest,  and  the  necessity  of 
having*-  power  to  support  it;  maybe  to  extend  it. 
Borrowing-  is  borrowing-,  no  matter  from  whom. 
Discounting-  bills  and  notes  may  require  rediscounting- 
them;  buying-  bills  and  notes  may  require  selling-  them 
again.  Money  may  not  be  equally  distributed.  It  is 
a  bank's  function  to  correct  the  inequality.  The  very 
object  of  banking-  is  to  aid  the  operation  of  the  laws 
of  commerce  by  serving-  as  a  channel  for 
carrying  monev  from   place  to  place,  as  the  Banks-R^dis- 

./        "^  %j  X.  \-  rouiiiiii" Power 

rise  and  fall  of  supply  and  demand  require,   to  Borrow. 
and    it  may  be   done   by    rediscounting-   the 
bank's   paper  or   by    some    other  form  of   borrowing-. 
Curtis    V.    Leavitt,     15    N.   Y.    1  ;     First    Nat.    Bank 
V,   National   Exchang-e  Bank,  92  U.    S.  122;  Cooper  v. 
Curtis,  30  Me.  488. 

A  power  so  useful  cannot  be  said  to  be  illeg-itimate, 
and  declared  as  a  matter  of  law  to  be  out  of  the  usual 
course  of  business,  and  to  charg-e  everybody  connected 
with  it  with  knowledg-e  that  it  may  be  in  excess  of 
authority.  It  would  seem,  if  doubtful  at  all,  more 
like  a  question  of  fact,  to  be  resolved  in  the  partic- 
ular case  by  the  usage  of  the  parties  or  the  usage  of 
communities. 

It  is  claimed,  however,  that  Bank  v.  Armstrong-, 
152  U.  S.  346,  14  Sup.  Ct.  572,  establishes  the  con- 
trary, and  decides  the  proposition  contended  for  by  the 
plaintiff  in  error.  We  do  not  think  it  does.  Some  of 
its  lang-uag-e  may  seem  to  do  so,  but  it  was  used  in 
sug-g-estion  of  a  question  which  mig-ht  be  raised  on  the 
facts  of  the  case,  without  intending  to  authoritatively 
decide  it.  The  facts  of  that  case  are  different  from 
the  facts  of  the  pending-  one,  and  in  response  to  its 
citation  we  might  rest  on  the  difference.  But  plaintiff 
in  error  urges  the  case  so  earnestly  and  confidently 
that  we  have  considered  it  better  to  answer  the  arg-u- 


436  POWERS  [vol  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

ment  on  which  it  is  asserted  to  be  based,  and  remove 
misapprehension  of  the  extent  of  the  decision. 

2.  Did  the  form  of  the  notes  or  the  order  of  indorse- 

ments charg-e  the  New   York  bank  with 
ifpotiabiPivotfs-       inquiry     of     Allis'     authority    or     with 

Title  or  Holder-  \  \    a  r     1  •  r     xi  r         i  • 

Jotice.  knowledo-e    or    his    use    or    them    tor  his 

personal  benefit? 

It  may  be  conceded  that  an  individual  neg-otiating- 
for  the  purchase  of  a  bill  or  note  from  one  having-  it  in 
possession,  and  whose  name  is  upon  it,  must  assume 
that  the  title  of  the  holder,  as  well  as  the  liability  of 
all  prior  parties,  is  precisely  that  indicated  by  the 
paper  itself.  These  principles  are  established  b}'^  West 
St.  Louis  Sav.  Bank  v.  Shawnee  County  Bank,  95  U. 
S.  557  ;  Bank  v.  Hammitt,  50  N.  Y.  158  ;  New  York 
Iron  Mine  v.  Negaunee  Bank,  39  Mich.  644  ;  Lee  v. 
Smith,  84  Mo.  304  ;  Park  Hotel  Co.  v.  Fourth  Nat. 
Bank,  30  C.  C.  A.  409,  86  Fed.  742  ;  Claflin  v.  Bank. 
25  N.  Y.  293. 

But  it  is  not  meant  that  circumstances  may  not  ex- 
plain the  notes  or  may  not  relieve  the  taker  from  the 
obligation  of  inquiry.  If  the  order  of  indorsements 
and  Allis'  official  position  and  his  relation  to  the  notes 
were  circumstances  to  be  considered,  they  were  not 
necessarily  controlling  against  all  other  circumstances, 
and  compelled  inquiry  as  a  peremptory  requirement  of 
law. 

3.  In  judging  of  the  conduct  and    rights  of  the  New 

York  bank,  the  question  is  not  what  actual 
inrhlHf'rol'pres-   authority    Allis  had,  but  what  appearance 
jtont*""""^        of  authority  he  had,  or,  rather,  what  appear- 
ance of  authorit}'^  he  was  g-iven  or  permitted 
by  the  directors. 

In  the  inquiry  there  are  involved  the  two  preceding 
propositions  as  questions  of  fact,  or  of  mixed  law  and 
fact.  The  first, — the  power  of  a  bank  to  rediscount 
its  paper, — as  to  what  the  course  of  dealing  of  the  con- 
tending banks  was  ;  the  second, ^the  form  of  the  notes 
and  their  order  of  indorsements  as  notice, — whether 


B  CAS]  POWERS  437 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

relieved  by  the  circumstances  which  attended  them  and 
the  transactions  which  preceded  them. 

The  evidence  shows  that  it  was  not  onl}'-  the  custom 
of  the  defendant  bank  to  rediscount  its  paper,  but  that 
it  was  the  custom  of  the  other  banks  at  Little  Rock  to 
do  so,  and  the  ofiScers  of  the  New  York  bank  testified 
as  follows  : 

"Q.  Were  there  any  of  the  dealings  between  said 
banks  (the  parties  to  this  action)  other  than  such  as 
take  place  between  banks  carr3'ing'  on  a  legitimate  bank- 
ing- business,  in  the  usual  course  of  business  ? 

"A.  No. 

"Q.  Were  the  correspondence  and  transactions  car- 
ried on  by  H.  G.  AUis  and  W.  C.  Denney,  as  you  have 
disclosed,  such  as  are  usual  for  the  president  and 
cashier  of  a  United  States  national  bank  to  carry  on 
and  exercise  ? 

"A.  Yes." 

This  testimony  certainly  has  very  comprehensive 
scope,  and  there  is  no  contradiction  of  it.  It  must  be 
received,  at  least,  as  establishing  that,  as  between  the 
contending  banks,  rediscounting  paper  was  in  the 
usual  course  of  their  business,  and  that,  besides,  it  was 
the  usual  course  of  business  in  their  respective  locali- 
ties. Therefore  the  discounting  of  the  notes  in  contro- 
versy carried  the  sanction  of  such  business. 

It  is  contended  that  the  notes  gave  notice  of  the 
want  of  authority  to  rediscount  them  because  the 
indorsement  of  the  bank  followed  that  of  Allis,  and 
hence  showed  that  the  bank  was  an  accommodation 
indorser,  and  because  the  indorsement  of  the  bank  was 
by  its  president,  and  not  by  its  cashier. 

The  order  of  indorsements  did  not  necessarily  import 
that  the  Little  Rock  bank  was  an  accommodation 
indorser.  The  order  was  a  natural  one,  if  the  notes 
had  been  discounted  in  the  regular  course  of  business. 
It  is  not  contended  that  a  want  of  power  precluded  the 
bank  from  discounting  the  notes  of  its  officers.  It  had 
been  done  for  one  of  the  directors,  and  his  note  was 
rediscounted    by   the    New    York    bank.      It    had    an 


438  POWERS  [vol  I 

Auten  V.  U.  S.  Nat.  Bank  of  New  York 

example,  therefore,  in  the  dealing's  of  the  parties,  and, 
besides,  was  neither  wrong-  nor  unnatural  of  itself. 
But  it  was  further  relieved  from  question,  and  any 
challeng-e  in  the  indorsements  was  satisfied  by  the  cir- 
cumstances. . 

It  is  to  be  remembered  that  the  discounting-  the  notes 
in  controversy  was  not  the  only  transaction  between 
the  banks.  It  was  one  of  many  transactions  of  the 
same  kind.  They  justified  confidence,  and  it  was  con- 
firmed by  the  manner  in  which  the  '  notes  were 
presented.  It  is  conceded  that  the  cashier  had  the 
power  to  rediscount  the  bank's  paper,  and  it  was  he 
who  solicited  the  accommodation  on  account  of  which 
the  notes  were  sent  to  the  New  York  bank.  The  notes 
themselves,  it  is  true,  were  sent  by  Allis,  but  expressly 
on  the  part  of  the  bank,  and  subsequent  correspondence 
about  them  was  conducted  with  the  cashier,  as  we  have 
seen.  And  there  could  have  been  no  misunderstanding-. 
The  letter  of  the  New  York  bank  which  the  cashier  of 
the  L/ittle  Rock  bank  answered  was  specific  in  the 
desig-nation  of  the  notes,  their  sum,  and  the  proceeds 
of  the  discount,  and  returned  one  of  the  notes  not  in 
controversy  to  be  corrected.  To  this  the  cashier 
replied  : 

"Dec.  20.  1892. 

"United  States  National  Bank,  New  York  City- 
Gentlemen  :  We  have  your  favor  of  the  10th  inst.,  in- 
closing- the  Dickenson  Hardware  Company  note  for 
completion,  which  we  herewith  return. 

"We  charg-e  vour  account  with  $31,871.27,  proceeds 
of  $32,500.00  of  ■'discounts. 

"Yours,  ver}'  truly, 

"W.  C.  Denney,  Cashier." 

Notice  was  therefore  broug-ht  to  him  and  to  the  bank 
of  the  transaction,  and  almost  inevitably  of  its  items. 
Was  he  deceived  as  to  the  notes  which  had  been  sent? 
It  is  not  shown  nor  is  it  sug-g-ested  how  such  deception 
was  possible,  and  a  presumption  of  ig-norance  cannot 
be  entertained.  Therefore,  if  the  discounts  he  wrote 
about  in  his  letter  of  the  20th  of  December  were  not  in 


B  CAS]  POWERS  4^9 

Auten  V.  U,  S.  Nat.  Bank  of  New  York 

pursuance  of  those  he  had  requested  in  his  letter  of 
November  25th,  he  oug-ht  to  have  known  and  oug^ht  to 
have  so  said.  If  he  had  so  said,  the  New  York  bank 
could  have  withdrawn  the  credit  it  had  given,  and  Allis' 
wrong-  could  not  have  been  committed. 

The  strength  of  these  circumstances  cannot  be 
resisted.  Against  them  it  would  be  extreme  to  say 
that  the  New  York  bank  was  put  to  further  inquiry. 
Of  whom  would  it  have  inquired  ?  Not  of  Allis,  the 
president  of  the  Little  Rock  bank,  because  his  author- 
ity would  have  been  the  subject  of  inquiry.  Then 
necessarily  of  the  cashier.  But  from  the  cashier  it 
had  already  heard.  He  beg-an  the  transaction.  He 
acknowledged  its  close,  accepting-  the  credit  which  had 
been  created  for  the  bank  of  which  he,  according-  to 
the  arg-ument,  was  the  executive  officer.  We  can  dis- 
cover no  neg-lig-ence  on  the  part  of  the  New  York  bank. 
The  dealing  with  the  notes  in  controversy  came  to  it 
with  the  sanction  of  prior  dealing's  with  other  notes. 
It  was  conducted  with  the  same  olEcers.  It  was  no 
more  questionable.  The  relation  of  Allis  to  it,  we 
have  seen,  was  not  unnatural,  and,  if  the  indorsement 
of  other  notes  was  not  shown  to  be  by  him,  it  was  not 
shown  not  to  have  been  by  him.  The  testimony  of 
the  officers  of  the  New  York  bank  was  that  the  notes 
were  received  and  discounted  in  the  reg-ular  course  of 
business,  and  in  no  way  different  from  the  other  notes 
discounted  by  it  for  the  Little  Rock  bank,  and  that 
they  knew  the  notes  were  properly  indorsed  by  one  of 
the  duly-authorized  officers  of  the  First  National  Bank; 
but,  as  the  notes  were  not  in  their  possession,  they 
were  unable  to  state  the  name  of  the  officer.  The 
testimony  opposed  to  this,  if  it  may  be  said  to  be 
opposed,  is  negative  and  of  no  value.  Some  of  the 
directors  testified  that  Allis  did  not  have  the  power 
nor  did  they  know  of  his  having  indorsed  the  bank's 
paper  for  rediscount.  They  knew,  however,  that  the 
bank's  paper  was  rediscounting-  in  larg-e  amounts,  and 
that  money  was  borrowing-  continually,  but  they 
scarcely  made  an  inquiry,    and    one    of    them   testified 


440  POWERS  [vOLr  I 

Auten  -'.  U.  S.  Nat.  Bank  of  New  York 

that  only  in  a  sing-le  instance  did  Allis  request  the 
board  for  power  to  borrow  money.  The  instance  is 
not  identified,  except  to  say  that  it  was  in  the  fall  of 
1892.  Of  whom,  in  what  amount,  whether  the  request 
was  g-ranted  or  denied,  what  inquiry  was  made,  what 
review  of  the  business  of  the  bank  was  made,  there 
was  absolute  silence  about.  They  surrendered  the 
business  absolutely  to  the  president  and  cashier,  and 
intrusted  the  manner  of  the  execution  to  them.  This 
court  said  by  Mr.  Justice  Harlan,  in  Martin  v. 
Webb,  110  U.  S.,  at  pa^e  15,  3  Sup.  Ct.,  at  pag-e  433  : 
''Directors  cannot,  in  justice  to  those  who  deal  with 
the  bank,  shut  their  eyes  to  what  is  gfoingf  on  around 
them.  It  is  their  duty  to  use  ordinary  diligence  in 
ascertaining  the  condition  of  its  business,  and  to  exer- 
cise reasonable  control  and  supervision  of  its  officers. 
The\'  have  something-  more  to  do  than  from  time  to 
time  to  elect  the  officers  of  the  bank  and  to  make 
declaration  of  dividends.  That  which  they  oug-ht,  by 
proper  dilig^ence,  to  have  known  as  to  the  gfeneral 
course  of  business  in  the  bank,  they  may  be  presumed 
to  have  known  in  any  contest  between  the  corporation 
and  those  who  are  justified  by  the  circumstances  in 
dealing-  with  its  officers  upon  the  basis  of  that  course 
of  business." 

Under  section  5136,  Rev.  St.,  it  was  competent  for 
the  directors  to  empower  the  president  or  cashier,  or 
both,  to  indorse  the  paper  of  the  bmk,  and.  under  the 
circumstances,  the  New  York  bank  was  justified  in 
assuming-  that  the  dealing-s  with  it  were  authorized 
and  executed  as  authorized.  Brig-g-s  z'.  SpaulJing",  141 
U.  S.  132,  11  Sup.  Ct.  924;  People's  Bank  r.  National 
Bank,  101  U.  S.  181  ;  Davenport  v.  Stone.  104  Mich. 
521,  62  N.  W.  722  ;  Bank  v.  Stone,  106  Mich.  367.  64 
N.  W.  487  ;  Houghton  v.  Bank,  26  Wis.  663  ;  Thomas 
V.  Bank,  40  Neb.  501,  58  N.  W.  943. 

4.  Set-off  is  the  discharg-e  or  reduction  of  one 
demand  by  an  opposite  one.  That  of  plain- 
tiff in  error  was  so  applied,  and  the  amount 
due  on  the  notes  reduced.  He  was  entitled  to  no 
other  relief. 


B  CAS]  POWERS  441 

Notes 

Scott  V.  Armstrong-,  146  U.  S.  499,  13  Sup.  Ct.  148, 
does  not  apply.  In  that  case  it  was  held  that  a  debtor 
of  an  insolvent  national  bank  could  set  off  against  his 
indebtedness  to  the  bank,  which  became  payable  after 
the  bank's  suspension,  a  claim  payable  to  him  before 
the  suspension.  And  it  was  further  held  that  the  set- 
off was  equitable,  and  therefore  not  available  in  a 
common-law  action. 

But  in  this  case  the  plaintiff  in  error  pleaded  the 
set-off.  His  riofht  to  do  so  was  derived  from  the  law 
of  Arkansas,  and  that  law  provided  :  "If  the  amount 
set  off  be  equal  to  the  plaintiff's  demand,  the  plaintiff 
shall  recover  nothing-  by  his  action  ;  if  it  be  less  than 
the  plaintiff's  demand,  he  shall  have  judg-ment  for  the 
residue  only."  Gould,  Dig".  Ark.  p.  1020,  §5.  The 
law  was  complied  with. 

It  follows  that  the  circuit  court  did  not  err  in 
instructing-  the  jury  to  find  for  the  plaintiff  (defendant 
in  error),  and  judg-ment  is  affirmed. 


NOTES. 

National  Banks —Receivers  —  Jurisdiction. — Under  the  National 
Bank  Act,  if  a  sufficient  fund  is  realized  from  the  assets  to  pay  all 
•claims  ag-ainst  the  bank,  and  to  leave  a  surplus,  the  comptroller 
ought  to  allow  interest  on  the  claims,  during'  the  period  of  adminis- 
tration, before  appropriating-  the  surplus  to  the  shareholders  of  the 
bank.  Chemical  Nat.  Bank  z'.  Bailey,  12  Blatchf.  (U.  S.)  480,  1  Nat. 
Bank  Cas.  260. 

A  receiver  appointed  to  wind  up  a  national  bank  is  an  officer  of 
the  United  States,  so  as  to  bring-  an  action  broug-ht  by  him  within 
the  jurisdiction  of  a  federal  court.  Piatt  z'.  Beach,  2  Ben.  (U.  S.) 
303,  1  Nat.  Bank  Cas.  182  ;  Staunton  v.  Wilkeson,  8  Ben.  lU.  S.)  357. 
2  Nat.  Bank  Cas.  162  ;  Frelinghuysen  z'.  Baldwin,  12  Fed.  Rep.  395, 
397.  395  ;  Price  v.  Abbott,  17  Fed.  Rep.  506  ;  Armstrong-  v.  Ettleshon, 
56  Fed.  Rep.  209;  Kennedy  z'.  Gibson,  8  Wall.  (U.  S.)  498,1  Nat. 
Bank  Cas.  17,  21. 

Banks — Implied  Power  to  Borrow  Money. — The  authority  to  bor- 
row money  is  b}'  implication  included  in  a  g-rant  of  g-eneral  laanking- 
powers.  Magee  z'.  Mokelumne  Hill  Canal,  etc.,  Co.,  5  Cal.  258; 
Ring-ling-  v.  Kohn,  6  Mo.  App.  333i ;  Donnell  z'.  Ivcwis  County  Sav. 
Bank,  80  Mo.  165  ;  Leg-gett  z:  New  Jersey  Mfg-.,  etc.,  Co.,  1  N.  J.  Eq. 
541,  23  Am.  Dec.  728;  Jackson  v.  Brown,  5  Wend.  (N.  Y.)  590; 
Barnes  v.  Ontario  Bank,  19  N.  Y.  152;  Coats  ^'.  Donnell,  94  N.  Y. 
168;  Ridg-way  v.  Farmers'  Bank,  12  S.  and  R.  (Pa.)  256,  14  Am.  Dec. 


442  POWERS  [vol  r 

Notes 

681  ;  Rockwell  v.  Elkhorn  Bank  13  Wis.  653  ;  Ballston  Spa  Bank  v. 
Marine  Bank,  16  Wis.  120  ;  Australasia  Bank  v.  Breillat,  6  Moo.  P. 
G.  152,  194. 

"Borrowing-  money  to  lend  ag^ain  is  a  part  of  the  legitimate  busi- 
ness of  banking-.  A  banker  is  a  dealer  in  capital,  an  immediate 
party  between  the  borrower  and  lender.  He  borrows  of  one  party 
and  lends  to  another,  and  the  difference  between  the  terms  at  which 
he  borrows  and  lends  is  the  source  and  measure  of  his  profits."" 
Per  Shankland,  J.,  in  Curtis  v.  Leavett,  15  N.  Y.  166. 

In  the  same  case,  Comstock,  J.,  discussing  the  power  of  a  bank  to 
borrow  money,  said  (15  N.  Y.)  :  "And  this  leads  me  to  observe  that 
banking,  regarded  as  a  business  and  not  as  a  franchise,  includes 
the  borrowing  of  money  as  one  of  its  features  or  incidents.  As  no  one 
denies  this  proposition,  I  will  not  dwell  upon  it  further  than  to 
quote  the  remarks  of  an  eminent  English  judge,  Mr.  Pembekton 
Leigh,  chancellor  of  the  Duchj^  of  Cornwall,  in  a  late  case  in  the 
Privy  Council.  Australasia  Bank  v.  Breillat,  6  Moo.  P.  C.  152.  He 
observed  :  'The  nature  of  a  banker's  business,  especially  if  the  bank 
be  one  both  of  issue  and  deposit,  necessarily  exposes  him  to  sudden 
and  immediate  demands  which  may  be  to  the  extent  of  a  large  por- 
tion of  his  debts,  while  his  profits  are  to  be  made  in  employing-  his 
own  moneys  and  those  intrusted  to  him  in  discounting  bills,  in  loans, 
and  other  modes  of  investment.  It  is  impossible  that  he  should 
always  have  his  assets  in  such  a  state  as  to  be  applicable  immedi- 
ately to  the  payment  of  all  demands  that  may  be  made  upon  him. 
*  *  *  \^'g  have  no  doubt  at  all,  therefore,  that  in  ordinary  banking 
partnerships  such  power  exists,  and  that  the  directors,  by  the  terms 
of  their  appointment,  have  all  the  general  powers,  and  among  the 
rest,  the  power  of  borrowing,  unless  such  power  is  excluded  by  other 
provisions  of  the  deed.'  " 

The  power  to  accept  deposits  necessarily  implies  the  power  to 
receive  money  as  a  loan,  and  to  assign  or  mortgage  negotiable 
instruments.     Ward  v.  Johnson,  95  111.  215. 

In  Planters'  Bank  v.  Sharp,  6  How.  (U.  S.)  301,  the  court  said, 
on  page  323  :  "The  chief  business  and  design  of  most  banks,  their 
very  vitality,  is  to  incur  debts  as  well  as  have  credits.  All  their 
deposit  certificates  or  bank  book  credits  to  individuals  are  debts  of' 
the  bank,  and  which  it  is  a  legitimate  and  appropriate  part  of  its 
business  as  a  bank  to  incur  and  to  pay.  The  same  may  be  said  also 
of  all  its  banknotes,  or  bills,  they  being  merely  promises  or  debts  of 
the  bank,  payable  to  their  holders,  and  imperative  on  them  to  dis- 
charge." Citing  Columbia  Bank  v.  Patterson,  7Cranch  (U.  S.)  307  ; 
Augusta  Bank  v.  Earle,  13  Pet.  (U.  S.)  593. 


A 


B  CAS]  OFFICERS  443^ 

Union  Nat.  Bank  of  Kansas  City  v.  Hill 


Union  Nat.  Bank  of  Kansas  City  et  al. 

V. 

Hill,  ef  al. 

[Supreme  Court  of  Missouri,  Feb.  21,  iSgg.) 

Savings  Banks — Insolvency — Negligence  of  Directors. — The  de- 
fendant directors  of  an  incorporated  savings  bank,  before  its  insol- 
Tcncy,  failed  to  discover  that  many  loans  were  being'  made  by  the 
bank  in  violation  of  an  express  statutory  provision,  and  to  insol- 
vent persons,  and  they  left  the  entire  management  of  its  business 
to  the  cashier.  Many  of  the  sums  of  money  so  loaned  having  been 
lost  by  reason  of  the  insolvency  of  the  debtors,  the  bank  became 
insolvent  and  made  an  assignment.  Held,  that  such  insolvency 
was  the  result  of  failure  on  the  part  of  the  directors  to  exercise  ordi- 
nary care  in  the  discharge  of  their  duties. 

Same— Same— Liability  of  Directors  to  Creditors.* — For  the  mere 
failure  of  such  directors  to  exercise  ordinary  diligence  and  care,  as 
such  in  the  management  of  the  business  affairs  of  the  bank,  by  rea- 
son of  which  the  bank  became  insolvent,  they  could  not  be  held  re- 
sponsible at  the  suit  of  the  bank's  general  creditors. 

Appeal  by  plaintiffs  from  Saline  county  circuit 
court.     Affirmed. 

Leslie  Orear,  A.  F.  Reel  or,  F.  M.  Black,  Nathan 
Frank,  C.  W.  Bates,  John  W.  Beebe,  I.  N.  Watson,. 
and  D.   V.  &  E.  S.  Herlder,  for  appellants. 

Thos.  W.  Shackleford,  Davis  &  Dugghis,  John  A. 
Rich,  S.  B.  Burks,  W.  M.  Williams,  and  Johnson  & 
Lucas,  for  respondents. 

Burgess,  J.  On  the  17th  day  of  October,  1894,  the 
Citizens'  Stock  Bank  of  Slater,  Mo.,  having-  become 
insolvent,  made  an  assig-nment  to  defendant  Com.  P. 
Storts,  for  the  benefit  of  its  creditors,  and 
the  plaintiffs,  whose  demands  were  allowed 
by  the  assig*nee,  prosecute  this  suitag-ainst  the  bank, 
the  assig-nee,  and  the  administrator  of  the  estate  of 
Joseph  Field,  deceased,   who  was  cashier,  and  against 

*See  notes  at  end  of  case. 


444  OFFICERS  [vol  I 

Union  Nat.  Bank  of  Kansas  City  v.  Hill 

Field's  estate,  and  the  other  defendants,  directors,  upon 
the  alleged  ground  that  the  insolvency  of  the  bank  was 
hrought  about  by  their  neglect  and  mismanag-ement. 
After  a  demand  upon,  and  a  refusal  by,  the  assig^nee  to 
institute  suit,  this  suit  was  brougfht  by  plaintiffs. 
There  was  judorment  for  defendants  in  the  trial  court, 
and  the  case  is  here  on  plaintiffs'  appeal  for  review. 

The  Citizens'  Stock  Bank  w'as  org-anized  under  the 
laws  of  this  state  on  the  1st  day  of  September,  1882, 
with  a  capital  stock  of  $30,000.  On  the  7th  day  of 
November,  1887,  the  capital  stock  v^^as  increased  to 
$100,000,  and  the  bank  made  an  assignment  on  Decem- 
ber 17,  1894,  for  the  benefit  of  its  creditors.  The 
petition  charges  the  defendants  with  negligence  in 
failing  to  take  any  part  in  the  management  of  the 
affairs  of  the  bank;  in  turning  the  management  of  the 
business  thereof  over  to  Joseph  Field,  the  cashier, 
during  the  existence  of  the  bank;  in  makiag  loans  to 
various  persons  and  firms  when  they  were  insolvent; 
and  in  making  to  each  of  certain  named  persons,  firms, 
and  corporations  loans  in  excess  of  25  per  cent,  of  the 
capital  stock  of  the  bank, — by  reason  of  all  which  said 
sums  of  money  so  loaned  were  lost,  and  said  bank 
became  insolvent.  The  plaintiffs  sue  for  themselves 
and  all  other  persons  similarly  situated.  The  total 
amount  of  the  assets  which  came  into  the  hands  of  the 
assignee,  including  real  estate,  furniture,  cash  and  cash 
items,  sums  due  from  other  banks,  overdrafts,  notes 
less  credits,  50  shares  of  stock  in  the  St.  Louis  National 
Bank  (which  was  held  by  the  Chemical  Bank  of  St. 
Louis  as  collateral  security  and  was  worth  $5,000).  and 
notes  held  by  other  banks  and  persons  as  collateral 
security,  at  face  value,  amounted  to $673,339.22.  There 
were  also  other  notes  held  as  collateral  by  other  banks 
which  were  not  included  in  the  inventory.  The  claims 
allowed  by  the  assignee  amount  to  $554,592.32,  aside 
from  $10,000  or  $12,000  of  other  unadjusted  demands. 
The  assignee,  after  diligent  effort  to  collect  the  money 
due  the  bank  up  to  the  time  of  the  trial,  had  only  been 
able  to  collect  some  $+5,000,  or  $46,000,  not  including 


1 


B  CAS]  OFFICERS  445 

Union  Nat.  Bank  of  Kansas  Citj'  v.  Hill 

some  $18,000  adjusted  by  way  of  off- sets,  and  had  paid  a 
dividend  of  3  per  cent.  only.  His  evidence  was  to  the 
effect  that  a  very  larg-e  portion  of  the  notes  which  came 
into  his  possession  are  worthless,  because  of  the  insol- 
vency of  the  persons  liable  thereon,  and  that  most  of  the 
notes  held  by  other  banks  and  individuals  are  of  no 
value  for  the  like  reason.  On  the  7th  day  of  November, 
1887,  the  defendant  directors  increased  the  stock  of  the 
bank  from  $30,000,  to  $100,000,  and  in  doing-  so  caused 
an  alleg-ed  surplus  of  $30,000  to  be  applied  in  payment 
of  new  stock  issued  to  the  existing-  stockholders,  when 
in  fact  there  were  no  surplus  earning-s  on  hand.  At 
the  time  the  capital  stock  of  the  bank  was  increased 
the  Mead  Mercantile  Company  was  indebted  to  the 
bank  on  notes  $42,155,  and  overdraft  $2,261.21,  making- 
in  all  $44,420.21,  which  was  more  than  the  entire  cap- 
ital stock  before  the  increase,  and  more  than  25  per 
cent,  after  the  increase.  The  indebtedness  of  this 
company  continued  to  be  greatly  in  excess  of  25  per 
cent,  of  the  capital  stock  of  the  bank  up  to  the  date  of 
theassig-nment,  when  it  amounted  to  $84,825.98.  Only 
a  small  portion  of  this  indebtedness  was  ever  secured. 
At  the  time  the  capital  stock  of  the  bank  was  increased, 
the  firm  of  Storts  &  Kubanks  owed  the  bank  $37,380.- 
99,  which  was  more  than  its  capital  stock  before  the 
increase,  and  more  than  25  per  cent,  after  the  increase. 
This  indebtedness  continued  to  increase  up  to  June, 
1892,  when  it  amounted  to  $117,294  more  than  the 
amount  of  the  capital  stock.  This  firm  failed  in  busi- 
ness on  the  last-named  date.  For  this  money  the  bank 
never  had  any  security.  The  members  of  the  firm  are 
the  sons  of  two  of  the  directors  of  the  bank.  In  addi- 
tion to  the  amount  owing  by  this  firm,  one  of  its  mem- 
bers, W.  B.  Storts,  at  the  time  of  the  assignment  by 
the  bank,  owed  it  on  his  personal  account  the  sum  of 
$53,103.52,  for  borrowed  money,  from  time  to  time  for 
the  last  two  years  next  preceding-  the  assig-nment,  for 
which  the  bank  had  no  security,  and  the  loss  a  total 
one.  The  indebtedness  of  one  Joseph  Baker  to  the 
bank  in  June,  1892,  exceeded  25  per  cent,  of  its  capital 


446  OFFICERS  [vol  I 

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stock,  and  so  continued  up  to  the  time  of  the  assig-nments 
when  it  amounted  to  $67,709,41.  For  this  indebtedness, 
the  bank  never  had  any  security.  In  addition  to  the 
above,  we  have  the  indebtedness  of  the  firm  of  B.  P. 
Storts  &  Co.,  of  which  firm  Joseph  Field,  the  bank's 
cashier,  was  a  member,  and  of  Joseph  Field,  amounting 
to  $67,979,  and  a  loss  of  not  less  than  $4-0.000  to  $50,- 
000.  While  the  books  of  the  bank  show  that  the  notes 
of  these  parties  were  discounted,  and  the  proceeds 
placed  to  their  respective  credits,  there  is  nothing-  on 
the  books,  in  many  instances,  to  show  when  and  for 
what  time  the  discounted  notes  were  renewed.  It  is 
the  same  with  respect  to  mmy  other  notes  held  by 
other  banks  as  collateral  security.  Of  the  $529,000 
and  over  of  notes  shown  by  the  inventory  to  be  in  the 
hands  of  the  assignee,  and  in  the  hands  of  other  banks 
and  other  persons  as  collateral  security,  $307,355.38 
do  not  appear  to  have  gone  through  the  bank, — that  is 
to  say,  they  do  not  appear  upon  the  books  of  the  bank; 
and  $286,055.85  in  notes  which  were  discounted,  and 
do  not  appear  by  the  books  to  have  been  paid,  are  not 
found  in  the  inventory,  either  as  in  the  possession  of 
the  assignee  or  in  possession  of  other  banks  as  collateral 
security.  It  is  probable  that  in  the  $307,355  38  there 
are  renewal  notes  to  the  amount  of  $286,055.85.  It 
may  be  stated  that  the  bank  kept  no  separate  account 
of  bills  payable.  It  seems  to  have  been  the  custom  of 
Field,  the  cashier,  in  borrowing  money  from  other 
banks,  to  make  a  note  signed  by  him  as  cashier,  and 
secure  the  same  by  notes  held  by  his  bank,  but  the 
books  of  his  bank  contain  no  record  of  the  notes  turned 
over  as  collateral  security.  The  information  as  to  notes 
held  by  other  banks  comes  from  the  correspondence 
turned  over  to  the  assiynee. 

On  September  1,  1882,  the  incorporators  of  the  bank 
met  and  adopted  the  following  by-laws:  "(1)  The 
officers  of  this  bank  shall  be  a  president,  vice  president, 
a  secretary,  a  cashier,  and  an  assistant  cashier.  The 
offices  of  secretary  and  cashier  may  both  be  filled  by 
the   same    person.     (2)  The   board   of    directors   shall 


1 


B  CAS]  OFFICERS  447 

Union  Nat.  Bank  of  Kansas  City  V.  Hill 

appoint  such  clerks  as  they  may  think  necessary,  reg- 
ulate the  salaries  of  all  officers  and  clerks,  determine 
theamount  of  dividend  to  be  paid,  the  time  and  number 
of  payments  of  dividends,  and  ofuard  the  interests  of 
the  bank.  (3)  The  cashier  shall  be  g-eneral  manag-erof 
the  business  of  the  bank,  and  have  supervision  over  it 
in  all  of  its  details.  He  shall  have  full  power  and 
authority  to  create  indebtedness  against  the  bank  ;  to 
sign  all  issues  of  indebtedness  and  make  indorse- 
ments for  the  bank,  and  receive  and  receipt  for, 
and  pay  out,  money  for  the  bank  ;  to  appoint 
clerks,  subject  to  the  confirmation  of  the  board, 
and  prescribe  their  duties."  Joseph  Field  was  elected 
cashier  of  the  bank  at  the  time  of  its  organization,  and 
continued  in  that  capacity  to  the  time  of  the  assignment. 
The  directors  met  about  once  a  year,  but,  having 
implicit  confidence  in  the  integrity  and  business  capac- 
ity of  the  cashier,  they  paid  no  attention  whatever  to 
the  business  of  the  bank,  but  left  it  entirely  to  him. 
Several  of  them  had  large  deposits  in  it  at  the  time  it 
closed  its  doors.  The  defendant  Com.  P.  Storts, 
assignee,  is  a  son  of  the  defendant  Perry  C.  Storts,  and 
was  clerk  in  the  bank  prior  to,  and  at  the  time  of,  the 
assignment.  There  were  other  losses  sustained  by  the 
bank  which  it  is  not  thought  necessary  to  set  forth 
specifically,  as  those  already  stated  are  sufficient  to  a 
decision  of  the  case. 

The  board  of  directors  of  a  bank  have  a  general 
superintendence  ©ver.  and  the  management  of,  all  its 
business  affairs  and  transactions  which  ordinarily  vest 
with  it;  and  it  has  been  said  "that  they  are  bound  to 
know  all  that  is  done,  beyond  the  merest  matter  of 
daily  routine,  and  that  they  are  bound  to  know  the 
system  and  rules  arranged  for  its  doing."  Morse, 
Banks,  §  116.  And  what  they  ought  to  know  as  to 
the  general  course  of  the  bank's  business  they  will  be 
presumed  to  have  known  in  a  contest  between  the  bank 
and  third  persons  dealing  in  good  faith  with  it.  They 
must  also  use  ordinary  care  and  diligence  to  know  the 
conduct  of  their   subordinate  officers,  as  well  as  what 


448  OFFICERS  [vol  I 

Union  Nat.  Bank  of  Kansas  Cit)^  t'.  Hill 

the  bank  books  show,  and  carefully  observe  the  law 
under  which  the  bank  is  org-anized.  The  duties  of  the 
defendant  directors  being-  thus  outlined,  the  questions 
are :  Did  they  fail  to  exercise  ordinary  care  in  the 
discharjy-e  of  their  duties,  by  reason  of  which  the  bank 
became  insolvent?  and,  if  so,  can  the  plaintiffs,  who 
are  only  creditors,  maintain  this  action  ?  Of  these  in 
their  order. 

Section  2758,  Rev.  St.  1889,  provides  that  "no  cor- 
poration oro-anized  under  this  article,  or  heretofore 
oro-anized  under  a  gfeneral  or  special  law  of  this  state, 
shall  loan  its  money  to  any  individual,  corporation  or 
company,  directly  or  indirectly,  or  permit  any  individ- 
ual, corporation  or  company  to  become  at  any  time 
indebted  to  it  in  a  sum  exceeding-  twenty-five  per  cent, 
of  its  capital  stock  actuallv  paid  in,  or  permit  a  line  of 
loans  to  any  greater  amount  to  any  individual  or  corpo- 
ration." The  bank  not  only  loaned  moneys  to  the 
Mead  Mercantile  Compan3%  Storts  &  Kubanks,  Josiah 
Baker,  and  B.  P.  Storts  &  Co.  in  excess  of  25  percent, 
of  its  capital  stock,  thereby  violating-  the  statute,  but 
it  made  many  of  these  loans  without  security,  when  the 
parties  were  insolvent,  when,  by  the  exercise  of  ordi- 
nary care, — that  is,  such  care  and  diligfeuce  as  a  prudent 
man  exercises  in  the  conduct  of  his  own  affairs  in  view 
of  all  the  surrounding-  circumstances, — the  board  of 
directors  mig-ht  have  known,  as  it  was  their  duty  to 
know,  that  the  loans  were  in  excess  of  the  limit  pre- 
scribed by  statute,  as  well,  also,  as  of  the  insolvency 
of  the  parties  borrowing-.  Thomp.  Corp.  §§  4104, 
4108;  Sperinof's  Appeal,  71  Pa.  St.  11;  Brigg-s  v. 
Spaulding-,  141  U.  S.  132,  33  Am.  &  Eng-.  Corp^  Cas. 
420,  11  Sup.  Ct.  924.  In  Martin  v.  Webb.  110  U.  S. 
7,  3  Sup.  Ct.  428,  in  speaking-  of  the  duties  of  the 
directors  of  a  bank,  it  is  said  :  "Directors  cannot,  in 
justice  to  those  who  deal  with  the  bank,  shut  their 
eyes  to  what  is  gfoing-  on  around  them.  It  is  their  duty 
to  use  ordinary  diligence  in  ascertaining^  the  condition 
of  its  business,  and  to  exercise  reasonable  control  and 
supervision  of  its  officers.     They  have  something  more 


B  CAS]  OFFICERS  449 

Union  Nat.  Bank  of  Kansas  City  v.  Hill 

to  do  than,  from  time  to  time,  to  elect  the  officers  of  the 
bank,  and  to  mai<e  declarations  of  dividends.  That 
which  they  mio-ht,  by  proper  diligfence,  have  known  as 
to  the  general  course  of  business  in  the  bank,  they  may 
be  presumed  to  have  known  in  any  contest  between  the 
corporation  and  those  who  are  justified,  by  the  circum- 
stances, in  dealing*  with  its  officers  upon  the  basis  of 
that  course  of  business."  In  the  case  of  Marshall  i\ 
Bank  of  Alexander,  85  Va.  676,  8  S.  E.  586,  it  was 
held  that  bank  directors  hold  to  stockholders,  deposi- 
tors, and  creditors  the  relation  of  trustees  to  cestnis  que 
trustoit,  and,  as  such,  are  personally  responsible  for 
frauds  and  loans  resulting-  from  negligence  and  inat- 
tention to  their  duties,  even  though  they  be  not  g^uilty 
of  bad  faith  and  are  ignorant  of  the  affairs  of  the  bank. 
The  same  rule  is  announced  in  Bank  v.  Caperton,  87 
Ky.  306,  8  S.  W.  885  ;  Williams  v.  McKay,  40  N.  J. 
Eq.  190;  11  Am.  &  Kng-.  Corp.  Cas.  613;  Delano  v. 
Case,  121  111.  247,  12  N.  E.  676  ;  Seale  v.  Baker,  70 
Tex.  283,  7  S.  W.  742.  Hun  v.  Cary,  82  N.  Y.  71, 
was  a  suit  broug-ht  by  the  receiver  of  a  savings  bank 
against  directors  to  recover  damages  because  of  mis- 
conduct in  the  manag-ement  of  the  affairs  of  the  bank, 
and  Earl,  J.,  in  speaking-  of  the  duties  which  the 
directors  owed  to  the  bank  and  to  its  depositors,  said  : 
"Few  persons  would  be  willing". to  deposit  money  in 
saving's  banks,  or  to  take  stock  in  corporations,  with 
the  understanding-  that  the  trustees  or  directors  were 
bound  only  to  exercise  slig-ht  care,  such  as  inattentive 
persons  would  g'ive  to  their  own  business,  in  the 
management  of  the  large  and  important  interests  com- 
mitted to  their  hands.  When  one  deposits  money  in  a 
saving-s  bank,  or  takes  stock  in  a  corporation,  thus- 
devesting-  himself  of  the  immediate  control  of  his  prop- 
erty, he  expects,  and  has  the  right  to  expect,  that  the 
trustees  or  directors,  who  are  chosen  to  take  his  place 
in  the  manag-ement  and  control  of  his  property,  will 
exercise  ordinary  care  and  prudence  in  the  trusts 
committed  to  them  ;  the  same  degree  of  care  and  pru- 
dence   that  men   prompted    by    self-interest  generally 

B  CAS— 29 


450  OFFICERS  [vol  I 

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exercise  in  their  own  affairs.  When  one  voluntarily 
takes  the  position  of  trustee  or  director  of  a  corporation, 
^ood  faith,  exact  justice,  and  public  policy  unite  in 
requiring-  of  him  such  deg-ree  of  care  and  prudence,  and 
it  is  a  gross  breach  of  duty — rrassa  >icg-lig-cutia — not 
to  bestow  them." 

It  would  therefore  seem  that  the  defendant  directors 
were  remiss  in  the  discharge  of  their  duties  in  not 
knowing,  when  it  was  their  duty  to  know,  that  loans 
were  being  made  by  the  bank  in  violation 
»^aviiiKs  Banks -III-  of  the  statutc,  and  to  persoHs  in  amounts 
*r Directors.  larger  than  its  capital.     Indeed,  the  case 

made  out  by  plaintiffs  is  one  of  the  most 
absolute  and  unqualified  inattention  and  neglect  by  the 
directors.  And  while  it  is  not  pretended  that  the}"- 
misappropriated  any  of  the  funds  of  the  bank,  or  that 
they  were  guilty  of  any  fraudulent  conduct,  they  were 
guilty  of  gross  neglect  in  leaving  the  entire  manage- 
ment of  the  business  of  the  bank  to  the  cashier  ;  and  it 
is  no  excuse  for  the  want  of  diligence  to  say  that  they 
bad  no  benefit  from  it,  and  that  their  services  were 
gratuitous,  when,  by  the  exercise  of  ordinary  care, 
ihey  could  have  prevented  the  disastrous  consequences 
which  flowed  from  the  want  of  such  care. 

The  defendant  bank  was  doing  business  under  arti- 
cle 7,  §  3,  c.  42,  Rev.  St.  1889,  and  by  section  2748  of 
the  Statutes,  which  is  to  be  found  in  that  article,  it  is 
provided  that  the  affairs  and  business  of  such  corpora- 
tions shall  be  managed  by  a  board  of  directors  or  mana- 
gers ;  thus  imposing  upon  them  functions  which  are 
inalienable,  and  which  they  could  not  confer  upon  any 
officer  or  officers. 

"Thus,  the  making  of  discounts  is  an  inalienable 
function  of  the  directors.  '  They  cannot  part  with  it, 
or  invest  any  officer  or  officers  with  it.  It  rests  in  them 
alone  and  exclusively.  It  is  a  power  of  that  degree  of 
vital  importance  that  it  cannot  be  taken  out  of  the  pol- 
icy of  the  general  principle  that  powers  of  a  public  na- 
ture, given  by  the  legislature,  cannot  be  subdelegated. 
The  legislature  imposes  upon  the  board  the  duty  of 


•3  CAS]  OFFICERS  451 

Union  Nat.  Bank  of  Kansas  Citj-  z'.  Hill 

taking"  charge  of  all  those  matters  of  business  upon  the 
wise  and  skillful  conduct  of  which  the  prosperity  of 
the  institution  and  the  safety  of  persons  dealing-  with 
it  depend.  This  duty  they  cannot  shift,  in  whole  or  in 
part,  upon  others,  and  it  covers  no  department  of  bank- 
ing business  more  unquestionably  than  the  making"  of 
loans  and  discounts."  Morse,  Banks,  §117;  Gibbons 
V.  Anderson,  80  Fed.  345  ;  3  Thomp.  Corp.  §$J  4108, 
4109  ;  1  Mor.  Corp.  §§  552,  556  ;  Spering-'s  Appeal, 
71  Pa.  St.  11. 

The  directors  having"  been  g"uilty  of  neglig"ence  in  the 
discharg"e  of  their  duties  by  reason  of  which  losses  were 
sustained  by  the  bank,  they  were  liable  in  an  action  at 
law  to  the  corporation,  while  a  g"oing"  concern,  for  such 
losses,  or  to  the  assig"nee  after  the  assig"nment,  or  in 
equity  to  the  stockholders,  in  the  event  of  the  decliua- 
iion  of  the  assig"nee  to  bring  suit.  Thompson  v.  Gree- 
ley, 107  Mo.  577,  17  S.  W.  962,  was  an  action  by  the 
receiver  of  an  insolvent  saving's  bankag-ainst  its  direct- 
ors, for  losses  sustained  by  the  bank  by  reason  of  its 
having"  loaned  its  moneys  in  violation  of  the  statute, 
and  it  was  held  that  the  directors  were  liable,  at  the 
suit  of  the  corporation,  for  the  losses  to  the  corporate 
assets  thereby  sustained  ;  citing  Bent  7-.  Priest,  86  Mo. 
482  ;  Slattery  r.  Transoortation  Co.,  91  Mo.  217,  4  S. 
W.  79 ;  Ward  v.  Davidson,  89  Mo.  445,  1  S.  W.  846  ; 
Hodg-es  V.  Screw  Co.,  1  R.  I.  312  ;  Smith  v.  Hurd,  12 
Mete.  (Mass.)  371  ;  Attorney  General  v.  Insurance  Co., 
2  Johns.  Ch.  371  ;  Thomp.  Liab.  Off.  376  ;  Cog"swell 
V.  Bull,  39  Cal.  320  ;  Insurance  Co.  v.  Jenkins,  3  Wend. 
130  ;  Hun  r.  Cary,  82  N.  Y.  70  ;  Mining"  Co.  v.  Rvan. 
42  Minn.  198,  44  N.  W.  56.  It  was  said  in  that  case 
that  a  receiver  of  an  insolvent  corporation  succeeds  to 
the  title  of  the  property  and  rig"hts  of  action  of  the 
corporation,  when  so  invested  by  statute,  or  by  the  de- 
gree of  the  court  appointing"  him,  and  is  the  proper  party 
to  a  suit  to  enforce  them  b}^  leg"al  proceeding"s.  If  a 
right  of  action  ag"ainst  these  directors  existed  in  favor 
of  the  corporation,  this  action  is  properly  prosecuted 
in  the  name  of  the  receiver.     Alexander  i'.  Relfe,  74 


452  OFFICERS  [vol,  r 

Union  Nat.  Bank  of  Kansas  Citj'  v.  Hill 

Mo.  516;  Gill  r.  Baliss,  72  Mo.  429;  Hig-h  Rec. 
>$  316  ;  Thomp.  Liab.  Off.  377,  and  authorities 
cited  ;  Morse,  Banks,  S  129  ;  Hun  v.  Gary,  supra. 
If,  then,  an  action  can  be  maintained  by  a  receiver 
of  an  insolvent  bank  against  its  directors  for  losses 
sustained  by  the  bank  because  of  their  failure  to 
exercise  ordinary  care  and  diligence  in  the  management 
of  the  business  of  the  bank,  for  like  reason  an  assignee 
may  do  so,  because,  by  reason  of  the  assignment,  he 
succeeds  to  all  interests  and  assets  of  the  bank.  So, 
it  has  been  held  that,  if  the  assignee  refuse  to  sue,  the 
stockholders,  who  are  the  real  parties  in  interest,  may 
maintain  an  action  in  their  own  names,  making  the  cor- 
poration a  defendant.  Brinckerhoff  v.  Bostwick,  88  N. 
Y.  52  ;  Greaves  v.  Gouge,  69  N.  Y.  154  ;  Scale  r. 
Baker,  70  Tex.  283,  7  S.  W.  742  ;  Bank  v.  Caperton, 
87  Ky.  306,  8  S.  W.  885.  And  shareholders  and 
creditors  will  be  permitted  to  sue  in  similar  circum- 
stances. Wallace  v.  Bank,  89  Tenn.  630,  33  Am.  & 
Kng.  Corp.  Gas.  253,  15  S.  W.  448  ;  Marshall  v.  Bank, 
85  Va.  676,  8  S.  E.  586  ;  Halsey  v.  Ackerman,  38 
N.- J.  Eq.  508,  1  Am.  &  Eng.  Corp.  Cas.  613;  Acker- 
man  V.  Halsey,  37  N.  J.  ^<\.  356.  In  each  of  these  cases, 
the  person  or  persons  suing  were  either  stockholders, 
or  stockholders  and  creditors,  and  the  fact  that  they 
were  stockholders  was  chiefly  relied  upon  for  a 
recovery,  so  that  they  are  not  authority  for  the  conten- 
tion that  persons  who  are  creditors  only  may  maintain 
such  an  action  against  the  directors  of  an  insolvent 
bank.  Warner  v.  Hopkins,  111  Pa.  St.  328,  2 
Atl.  83,  was  an  action  by  the  creditors  of  an  insol- 
vent bank  against  its  directors  and  assignee  to 
charge  the  directors  for  losses  sustained  by  the 
bank  by  reason  of  their  mismanag-ement  to  such  an 
extent  as  to  render  it  insolvent,  and  it  was  held  that 
the  action  might  be  maintained.  The  court  said: 
"Had  the  creditors  the  right  to  file  a  bill?  Of  this  we 
entertain  no  doubt.  It  was  held  in  Watt's  Appeal,  78 
Pa.  St.  370,  that  the  shareholders  are  entitled  to  pro- 
ceed by  bill  against  the  directors  of  a  corporation  for 


B  CAS]  OFFICERS  453 

Union  Nat.  Bank  of  Kansas  City  v.  Hill 

mismaiiag'ement  of  its  affairs;  citino- Spering-'s  Appeal, 
71  Pa.  St.  24,  and  Gravenstine's  Appeal,  49  Pa.  St. 
310.  It  is  settled  by  numerous  cases  that  the  creditors 
have  the  same  rig-ht."  So,  in  Trustees  v.  Bosseiux,  3 
Fed.  817,  it  was  held  that  the  directors  of  an  insolvent 
corporation  migfht  be  sued » by  one  or  more  of  its 
creditors  for  losses  sustained  by  the  bank  by  reason  of 
their  neglig-ence.  In  Poster  v.  Bank,  88  Fed.  604, 
plaintiffs,  who  were  depositors  in  the  bank  of  Abing"- 
ton,  sued  the  bank  and  its  directors,  for  themselves 
and  all  ether  creditors  who  mig-ht  come  in  and  be 
made  parties  plaintiffs,  for  losses  sustained  by  the  bank, 
by  reason  of  their  negligence,  so  as  to  render  it  insol- 
vent;  and,  upon  demurrer  to  the  petition,  it  was  held 
that  the  g-eneral  relation  of  the  bank  to  a  depositor  is 
that  of  debtor  and  creditor  (citing-  City  of  St.  Louis  v. 
Johnson,  5  Dill.  241,  Fed.  Cas.  No.  12,235),  and  that 
plaintiffs  migfht  maintain  the  action.  Delano  v.  Case, 
121  111.  247,  12  N.  E.  676,  was  a  suit  by  a  g-eneral  de- 
positor in  a  bank  against  its  directors  for  neg'lig'ence 
in  permitting-  it  to  be  held  out  to  the  public  as  solvent 
when,  in  fact,  it  was  at  the  time  insolvent,  b}'  reason 
of  which  he  sustained  damag^es,  and  it  was  held  that 
he  mig-ht  prosecute  the  action.  See,  also,  3  Thomp. 
Corp.  §•  4123;  Maisch  v.  Saving-  Fund,  5  Phila.  30. 
These  decisions  all  seem  to  proceed  upon  the  theory 
that  the  directors  of  a  banking-  corporation  and 
its  creditors  occupy  towards  each  other  the  relation 
of  trustee  and  ccshd  que  trust,  but  we  are  not  prepared 
to  adopt  this  view.  "They  are  not  express  trustees: 
they  are  ag-ents.  They  are  trustees  in  the  sense  that 
every  agent  is  a  trustee  for  his  principal,  and  bound  to 
exercise  diligence  and  g-ood  faith."  Wallace  v.  Bank, 
89  Tenn.  630,  3  Am.  &  Eng.  Corp.  Cas.  390,  15  S.  W. 
448.  The  relation  of  the  creditors  towards  the  corpora- 
tion "is  that  of  contract,  and  not  of  trust."  Briggfs  t-. 
Spaulding,  141  U.  S.  132,  33  Am.  &  Eng-.  Corp.  Cas.  4, 
11  Sup.  Ct.  924.  In  Deadrick  r.  Bank  (Tenn.  Sup.)  45 
S.  W.  786,  it  is  held  that  directors  of  a  corporation  are  its 
agents,  and  the  ag-ents  of  its  stockholders,  but  owe  no 


454  OFFICERS  [vol  I 

Union  Nat.  Bank  of  Kansas  City  v.  Hill 

duty  to  corporate  creditors,  and  are  not  liable  to  such 
creditors,  after  insolvency  of  the  corporation,  for  loss 
made  possible  by  their  neg-lect  to  properly  supervise 
the  manag-ement  of  its  affairs.  The  court  said: 
"That  directors  are  liable  in  an  action  at  law  to  their 
principal,  the  corporation,  for  losses  resulting"  to  it. 
from  their  malfeasance,  misfeasance,  or  their  failure  or 
neg"lect  to  discharge  the  duties  imposed  by  their  office, 
and,  'in  equity,  to  the  stockholders  for  these  losses,  the 
corporation  declining  to  bring"  suit,  is  clear,  upon  the 
authorities.  Though  the  corporation  is  the  legal 
entity,  yet  the  stockholders  are  interested  in  the  opera- 
tions of  the  corporation  while  in  a  state  of  activity,  and, 
upon  its  dissolution,  in  the  distribution  of  its  property, 
after  all  debts  are  paid  ;  and  so  its  officers  or  ag-ents 
stand  in  a  fiduciar}^  relation  to  both.  But  it  is  other- 
wise as  to  creditors.  The  directors  of  a  gfoing-  cor- 
poration, whether  able  to  pay  its  debts  or  not,  owe 
no  allegiance  to  them.  It  is  true  that  the  creditors 
may  extend  credit  upon  the  faith  that  the  company  has 
assets  to  pa}^  its  debts,  and  that  these  assets  are  pru- 
dently managed;  yet  they  are  strang-ers  to  the  directors: 
they  maintain  no  fiduciary  relation  with  them  ;  there  is 
a  lack  of  privity  between  the  two.  As  was  said  by  the 
supreme  court  of  the  United  States  in  Brigg-s  : . 
Spaulding,  141  U.  S.  132,  33  Am.  &  Eng.  Corp.  Cas.. 
420,  11  Sup.  Ct.  924,  the  relation  between  the  credit- 
ors and  the  corporation  'is  that  of  contract,  and  not  ot 
trust'  ;  but  there  is  nothing-,  of  either  contract  or  trust, 
in  all  ordinary  cases,  to  create  any  relation  between  the 
creditor  and  the  directors.  A  creditor  of  a  gfoing-  cor- 
poration being-  thus  a  mere  strang-er,  we  think  it  clear 
that  he  can  no  more,  after  the  suspension  of  the  corpo- 
ration by  insolvency,  either  in  law  or  equity,  set  in 
motion  litigation  to  hold  its  directors  liable  for  losses 
attributable  merely  to  inattention,  than  could  the 
creditor  of  any  other  insolvent  debtor  maintain  a  suit 
against  his  ag-ent  under  similar  circumstances.  In 
such  a  case  as  the  one  we  are  dealing-  with, — that  is.. 
loss  to  the  corporation  resulting-  from  mere  negligence 


B  CAS]  OFFICERS  455 

Union  Nat.  Bank  of  Kansas  City  v.  Hill 

on  the  part  of  its  directors, — a  creditor  seeking-  to  hold 
the  directors  liable    for   this    loss,    even    in  a  suit  like 
this,  must  rest  his  claim  upon  some  provision  of  posi- 
tive law."     Laudis  r.  Hotel  Co.,  53  N.  J.  Eq.  654,  1 
Am.  &  Eno-.  Corp.  Cas.,  N.  S.,  208,  33  Atl.  964,  was 
a  proceeding-  in  equity   by   plaintiff,    who   was  both  a 
stockholder  and  a  creditor  of  an  insolvent  corporation, 
to  charg-e  its  directors  with  losses  sustained  by  their 
mismanag-ement.     The    court    reviewed   the   cases   of 
Halsey  v.  Ackerman  and   Williams  v.  McKay,  supra, 
and  held  that,  in  so    far   as   the    plaintiff  was  a  stock- 
holder, they  were  liable    to    him   for    losses   resulting- 
from  their  neglig-ence,   because   of  the  fiduciary  rela- 
tions   existing-     between    them  ;    but,    as    for    losses 
sustained  by  him  as  a    mere   creditor,    they    were   not 
liable   to    him    for  such    neg-lig-ence,   because  they  did 
not  occupy  the  relation    to    him   as    such  creditor,  and 
there  was  no  evidence  of  diversion  by  them  of  the  bank 
funds  from  their  leg-itimate  channel.     In  Manufactur- 
ing- Co.  V.  Foster  (Iowa)  41  N.    W.   212,    it   was    held 
that  "the  fact  that  directors  of  a  corporation  have  mis- 
managed  its   business   does   not   render  them  liable  to 
creditors,  unless  they  are  made  liable  by  the  provisions 
of   the   articles    of    incorporation   or    b}'    statute."     3 
Thomp.  Corp.  4137.     So,  in   Fusz   :'.   Spaunhorst,  67 
Mo.  266,  it  is  held  that,  in  the  absence  of  statutory  or 
constitutional    provisions,   a  director  or    officer    of   an 
insolvent  incorporated  bank  is  not  individually  respons- 
ible   in    an    action    at    law   for   injury   resulting-    to    a 
creditor    or    depositor    from    the    manag-ement    of    the 
bank,  unless  the  injury    be    occasioned    by    his    inten- 
tional or  fraudulent  act.     Our  conclusion  is 
that   the    relation    of    defendant    bank     to  ??'",",~,^*'ru~.,,, 
plaintiffs  is  that  of  debtor  and  creditor,  and  oVs  tn  creditorN. 
that    for   the    mere    failure    of    the    bank 
directors  to  exercise    ordinary    dilig-ence    and    care   as 
such,  in  the  manag-ement  of  the  business  affairs  of  the 
bank,  by  reason  of  which  the  bank  became  insolvent, 
they  cannot  be  held  responsible  at  the  suit  of  its  g-en- 
eral  creditors.     We  according-ly  affirm  the  judg-ment. 
Gantt,  p.  J.,  and  Sherwood,  J.,  concur. 


456  OFFICERS  [voiy  I 

Note 

Action  by  Creditors  against  Directors. — Aside  from  statutory  pro- 
visions or  one  of  similar  nature  in  the  org'anic  law,  the  directors  or 
officers  of  a  corporation  would  not  be  individually  responsible  in  an 
action  at  law  for  injury  resulting-  to  a  creditor  unless  the  injurj' 
were  occasioned  by  the  malicious  or  fraudulent  act  of  the  part}' 
complained  of.  Mere  nonfeasance  will  not  answer  ;  nothing  short 
of  active  participancy  in  a  positively  wrongful  act  intendedly  and 
directly  operating  injuriously  to  the  part}'  complaining  will  give 
origin  to  individual  liability  as  above  indicated.  Fusz  v.  Spaun- 
horst,  67  Mo.  264  ;  Solomon  v.  Richardson,  30  Conn.  360;  Harman  z'. 
Tappenden,  1  East  555  ;  Vose  z'.  Grant,  15  Mass.  505  ;  Gerhard  v. 
Bates,  20  Eng.  E.  &  Eq.  129  ;  Crown  v.  Brainerd,  57  Vt.  625.  See 
Union  Nat.  Bank  v.  Douglass,  1  McCrary  (U.  S.)  86. 

The  directors  of  a  corporation  appointed  a  secretary,  whose  char- 
iicter  was  free  from  suspicion,  and  to  whom  the  funds  of  the  corpo- 
ration were  not  unnecessarily  exposed,  and  they  exercised  reason- 
able care  in  relation  to  the  performance  of  his  duties.  Held,  that 
-such  directors  were  not  personally  liable  to  the  stockholders  for  a 
loss  by  the  fraud  and  embezzlement  of  the  secretary,  who  had 
baffled  inquiry  by  the  production  of  false  and  forged  books.  Scott 
z\  Depeyster,'l  Edw.  Ch.  (N.  Y.)  513. 

Payments  made  by  a  corporation,  intending  in  good  faith  to  go 
on  and  develop  valuable  patents  owned  by  it,  to  its  directors,  of 
monej'  borrowed  from  them  in  the  ordinary  course  of  business,  are 
not  recoverable  from  such  directors  by  a  creditor  of  the  corporation 
whose  debt  at  the  time  was  not  due  and  payable.  Holt  v.  Bennett, 
146  Mass.  437. 

A  creditor  at  large  cannot,  under  ^^  1781,  1782,  of  N^ew  York  Code, 
maintain  an  action  against  directors  of  a  corporation  for  their  mis- 
conduct. A  judgment  creditor  only  is  entitled  to  sue.  Paulsen  i'. 
Van  Steenbergh,  65  How.  Pr.  (N.  Y.)  342. 

Creditors  of  an  insolvent  corporation  are,  however,  entitled  in 
■equity  to  have  the  company's  remaining  assets  applied  in  payment 
of  their  claims,  and  this  equitable  right  will  be  protected  by  the 
courts.  Branch  v.  Roberts,  50  Barb.  (N.  Y.)  435  ;  Winter  v.  Baker, 
34  How.  Pr.  (N.  Y.)  183;  SO  Barb.  (N.  Y.)  432;  Fusz  v.  Spaunhorst, 
67  Mo.  264  ;  2;inn  v.  Mendel,  9  W.  Va.  580  ;  Crown  v.  Brainerd,  57 
Vt.  625  ;  Sweeny  v.  Sugar  Refining  Co.,  30  W.  Va.  443  ;  Atlanta 
Real  Estate  Co.V.  Atlanta  Nat.  Bank,  75  Ga.  41. 

So  a  misapplication  of  the  company's  assets,  either  b}'  the  board 
of  directors  or  by  other  persons,  may  be  enjoined  by  the  creditors  of 
the  insolvent  corporation,  and  they  ma}'  hold  the  company's  agents 
liable  for  wasting  assets  which  are  needed  to  settle  their  claims  on 
the  ground  that  this  constitutes  a  misapplication  of  the  trust  funds. 
Gratz  V.  Redd,  4  B.  Mon.  (Ky.)  178;  Bank  of  St.  Mary's  z'.  St.  John, 
25  Ala.  566  :  Wood  v.  Drummer,  3  Mason  (U.  S.)  308  ;  Adder  v.  Mil- 
waukee Brick  Co.,  13  Wis.  62;  Atlanta  Real  Estate  Co.  v.  Atlanta 
Nat!  Bank,  75  Ga.  40  ;  McCartv's  Appeal,  110  Pa.  St.  374  ;  People  v. 
Bruff,  60  How.  Pr.  (N.  Y.)  1  ;  Sears  z'.  Hotchkiss,  25  Conn.  171. 

An  able  discussion  of  this  question  will  be  found  in  Eandis  v.  Sea 
Isle  City  Hotel  Co.  et  al.  (N.  J.  Ch.).  1  Am.  &  Eng.  Corp.  Cas.,  N. 
S.,  208,  53  N.  J.  Eq.  654,  in  which  case  the   authorities  are  reviewed. 


CAS]  OFFICERS  457 

Gerner  v.  Mosher 


Gerner 


Mosher  e/  a/. 

(Supreme  Court  of  Nebraska,  Feb.  sj,  i8gg.) 

Jurisdiction — Effect  of  Federal  Decision. — Where  a  cause  has  been 
removed  from  a  state  court  to  the  federal  court,  and  has  been  by 
ihat  court  remanded  to  the  state  court  for  want  of  jurisdiction,  it  is 
the  duty  of  the  state  court,  in  subsequent  proceedings,  to  treat  as 
conchisive  upon  it  the  decision  of  the  federal  court  on  the  question 
of  jurisdiction. 

Stockholders  —  Examinations  of  Books. —  Assuming  it  to  be  the 
right  of  a  stockholder  in  a  corporation  to  exatnine  the  books  thereof , 
it  is  not,  as  a  matter  of  law,  his  duty  to  do  so,  after  becoming  a  stock- 
holder, for  tiie  purpose  of  ascertaining  whether  or  not  he  has  been 
defrauded  in  the  purchase  of  such  stock  ;  he  not  being  aware  of  any 
fact  leading  to  a  suspicion  that  he  may  have  been  so  defrauded. 

National  Banks— Reports. — The  object  of  requiring  publication  by 
national  banks  of  reports  made  to  the  comptroller  of  the  currency, 
in  pursuance  of  section  5211,  Rev.  St.  U.  S.,  is  to  aiford  information 
"io  all  persons  having  or  contemplating-  business  transactions  into 
which  the  condition  of  the  bank  directly  enters  as  a  material  factor. 

Same — Same. — Therefore  one  contemplating  the  purchase  of  stock 
in  the  bank  is  entitled  to  rely  on  such  publications  equally  with  a 
depositor  or  note  holder. 

Reports — Attestation. — The  statute  referred  to  requires  such  report 
to  be  verified  by  the  oath  or  affirmation  of  the  president  or  cashier, 
and  to  be  attested  by  the  signature  of  at  least  three  directors.  To 
charge  a  director  individually  with  the  consequences  of  false  reports, 
it  must  appear  that  he  attested  them,  or  that  he  in  some  manner 
participated  in  making  or  publishing  them.  The  attestation  is  not 
the  act  of  the  whole  board,  but  that  of  the  individual  directors  sign- 
ing it. 

Same — False  Representations. — One  who  makes  a  false  represen- 
tation, under  circumstances  which  would  render  him  liable  if  it 
■were  made  voluntarily,  is  not  excused  by  the  fact  that  the  law  re- 
i^tiired  him  to  make  a  true  statement  of  the  character  counted  upon. 

Same — Knowledge  of  Officers.— The  president  and  cashier  of  a 
bank,  shown  to  have  personally  conducted  its  business,  cannot  be 
presumed  ignorant  of  the  falsity  of  reports  of  the  bank's  condition, 
by  them  published,  the  books  of  the  bank  on  their  face  disclosing- 
their  falsity. 

Same— "Attest" — Definition  of.  The  word  "attest",  as  used  in 
section  5211,  Rev.  vSt.  U.  S.,  means  something  more  than  to  witness 
the  execution  of  the  report  by  the  president  or  cashier;  it  means  to 
certify  its  correctness. 

Same — Attestation — Liability  of  Directors. — Where  the  directors  of 
a  national  bank  attest  the  reports  made  of  its  condition  by  its  exec- 


458  OFFICERS  [vol  I 

Gerner  :■.  Mosher 

utive  officers  to  the  comptroller  of  the  currency,  under  section  5211, 
Rev.  St.  U.  S.,  they  therebj'  certify  that  the  statements  contained 
in  said  report  are  absolutely  true.  Ikvixk  and  Ryan,  CC,  dissent- 
ing. 

Same — Same — Same — Pleading  and  Proof. — In  an  action  for  false 
representations,  it  is  not  necessary  to  aver  or  prove  that  the  party 
making-  them  knew  they  were  untrue  ;  and  this  rule  is  applicable  tc 
an  action  for  deceit  against  the  director  of  a  bank  for  falsely  stating- 
the  financial  condition  of  the  corporation.  Irvine  and  Ryan,  CC. 
dissenting-. 

Same— Same — Same.* — The  directors  of  an  insolvent  national 
bank  are  personally  liable,  at  the  suit  of  one  purchasing-  the  stock  of 
such  bank,  for  damages  sustained  by  the  reason  of  the  insolvency  of 
the  corporation,  when  the  plaintiff  is  induced  to  make  such  purchase 
by  false  representations  of  solvency,  contained  in  reports  made  bj 
the  bank  to  the  comptroller  of  the  currencj-,  and  attested  by  the 
directors,  and  published  in  pursuance  of  law,  even  though  the  direct- 
ors were  unaware  that  such  reports  and  representations  were  false 
or  untrue,  and  were  made  without  intention  to  defraud.  Irvine 
and  Ryan,  CC,  dissenting. 

(Syllabus  by  the  Court.) 

Error  by  plaintiff  to  Lancaster  county  district  court. 
JRcvcrscci  i)i  fxirt. 

Webster,  Rose  &  Fisherdick,   for  plaintiff  in  error, 
Chas.  O.   Whedon,  J.    IV.  Deuecse,  and  F.  M.  HalL 
for  defendants  in  error. 

Irvine,  C.     Henry  Gerner  broug-ht  his  case  against 
Charles  W.   Mosher,  Richard  C.  Outcalt,  Charles  E. 
Yates,  David  E.  Thompson,  RollaO.  Phillips,  Ambrose 
'  j^    ^^  P.  S.  Stuart,  and  Ellis  P.   Hamer.     Homar 

J.  Walsh  and  Emma  H.  Holmes,  the  latter 
as  administratrix  of  the  estate  of  William  W.  Holmes, 
were  also  named  as  parties  defendant,  but  as  to  them 
the  proceedino-s  seem  to  have  been  abandoned.  The 
petition  alleo-es  that  Mosher  was  the  president  of  the 
Capital  National  Bank,  Walsh  its  vice  president,  and 
Outcalt  its  cashier,  and  that  the  other  defendants  named» 
tog-ether  with  Mosher,  constituted  its  board  of  directors. 
The  petition  is  in  two  counts.  The  first  alleges  that 
on  May  18,  1887,  a  report  was  made  by  the  defendants 
to  the  comptroller  of  the  currency  of  the  resources  and 
liabilities  of  said  bank  as  they  existed  May  13,  1887: 

*See  note  at  end  of  case. 


B  CAS]  OFFICERS  45^t 

Gerner  v.  Mosher 

that  said  report  was  sworn  to  by  Outcalt,  as  cashier,  and 
attested  as  correct  by  Mosher,  Holmes,  and  Yates,  as^ 
directors;  that  the  defendants  caused  said  report  to  be 
published  in  the  State  Journal,  a  newspaper  published 
in  Lincoln,  "for  the  purpose  of  inducing-  others,  and 
particularly  this  plaintiff,  to  deal  with  said  corporation. 
and  to  repose  in  it  and  them,  its  directors  and  manag-ing- 
officers,  and  to  induce  others,  and  particularly  this 
plaintiff,  to  purchase  its  capital  stock,  and  make  invest- 
ments therein,  and  represented  and  held  out  said  state- 
ment to  be  a  true  statement  of  the  financial  conditioic 
of  said  corporation."  The  report  is  then  set  out  in 
terms,  and  it  is  alleged  that  said  report  was  false,  in 
that  it  overstated  the  mortg-ages,  stocks  and  bonds  held 
by  the  bank  to  the  amount  of  530,000,  the  amount  due 
the  bank  from  reserve  ag-ents  about  576,000,  and  its^ 
loans  and  discounts  about  550,000;  that  said  report  and 
false  representations  were  made  bj^  said  four  defend- 
ants with  the  knowledg-e,  assent,  and  co-operation  or 
all  the  other  defendants,  and  the  same  were,  as  thej.'^ 
and  each  of  them  well  knew,  wholly  false  and  untrue; 
that  plaintiff  believed  said  representations  to  be  true, 
and  on  the  faith  thereof  purchased  from  Charles  Ham- 
mond, on  the  11th  of  July,  1887,  50  shares  of  the  capital 
stock  of  said  corporation,  for  the  sum  of  $6,250;  that 
it  would  have  been  worth  said  sum  had  the  said  repori: 
been  correct,  but  in  fact  the  bank  was  insolvent  and 
the  stock  worthless;  that  January  22,  1803,  the  bank 
failed;  that  the  stockholders  have  been  assessed  10* : 
cents  on  the  dollar  on  their  stock,  and  judg-ment  ren- 
dered ag-ainst  the  plaintiff  for  said  assessment;  that, 
notwithstanding-  the  bank  had  no  net  earning-s,  divi- 
dends were  from  time  to  time  declared,  and  suit  ha- 
been  broug-ht  ag-ainst  the  plaintiff  to  recover  dividend- 
by  him  received.  The  second  cause  of  action  is,  sub- 
stantially, pleaded  in  the  same  manner,  charg-ing-  <. 
false  report  of  the  condition  of  the  bank,  September 
30,  1889.  and  the  purchase  by  the  plaintiff,  in  reliance 
on  that  report,  in  November,  1889,  of  50  shares  of  stock 
from  Henry  K.   Lewis,  for  the  price  of  57,250.       The 


460  OFFICERS  [vol  I 

Gerner  v.  Mosher 

defendants  filed  separate  answers,  denying-  the  material 
averments  of  the  petition,  pleading*  the  statute  of  limi- 
tations, and  also  pleading-  that  the  action  was  one 
whereof  the  federal  courts  had  exclusive  jurisdiction, 
and  that  it  had  been  removed  to  the  circuit  court  for  the 
district  of  Nebraska.  At  the  close  of  the  trial,  the 
district  judg-e  peremptorily  instructed  the  jury  to  re- 
turn a  verdict  for  all  the  defendants.  The  plaintiff 
brings  the  case  here  for  review. 

The  plaintiff  contends  that  he  was  entitled  to  relief 
under  the  provisions  of  section  5239  of  the  Revised 
Statutes  of  the  United  States,  relating-  to  the  liability 

of  directors  of  national  banks.  It,  however, 
fnrisdiftioii-  partly  appears  from  the  record,  and  is 
/rai  Decisions.       stated  in  both   of  the  briefs,  that  the  action 

wasat  one  time  removed  to  the  federal  court; 
that  a  motion  to  remand  was  overruled,  but  that  sub- 
sequently, the  case  arising  in  that  court,  Judge  Shiras 
presiding-,  on  a  demurrer  to  the  petition,  it  was  found 
that  the  federal  court  had  no  jurisdiction,  and  the  case 
was  therefore  remanded  to  the  district  court  of  Lan- 
caster county.  The  opinion  of  Judge  Shiras,  re- 
manding- the  case,  is  found  in  Gerner  v.  Thompson,.  74 
Fed.  125,  and  proceeds  on  the  ground  that  an  action 
under  section  5239  of  the  Revised  Statutes  may  be 
maintained  only  by  the  receiver  of  a  bank,  so  that  an 
action  by  a  private  individual  ag-ainst  directors  for 
making^  false  reports  must  be  maintained,  if  at  all,  as 
an  action  at  the  common  law  for  deceit,  and  therefore 
presents  no  question  under  the  laws  of  the  United 
States.  Judge  Shiras  also  expresses  his  opinion  to 
the  effect  that,  in  order  to  maintain  an  action  under  the 
federal  statute,  it  must  appear  that  a  forfeiture  of  the 
bank's  charter  has  been  adjudg-ed  at  'the  suit  of  the 
-comptroller  of  the  currency.  Plaintiff  vigorously  at- 
tacks this  opinion,  especially  the  latter  part.  But, 
under  the  circumstances,  we  would  not  be  free,  if  we 
were  so  disposed,  to  g-ive  the  statute  a  construction  dif- 
ferent from  that  which  was  given  it  b}"  the  federal 
■court  in  this  verv  case.     The  construction.of  the  statute 


\ 


B  CAS]  OFFICERS  461 

Gerner  v.  Mosher 

was  necessary  for  the  purpose  of  the  demurrer,  and 
as  leading-  to  the  order  remanding-  the  case;  and  it 
beiag  a  federal  statute,  construed  by  a  federal  court  in 
determining  its  own  jurisdiction,  we  are  bound  to  ac- 
cept the  result  of  that  construction,  and  are  not  at  lib- 
erty to  here  review  it.  Railroad  Co.  v.  Fitzgerald,  16 
Sup.  Ct.  389. 

The  defendants,  to  sustain  the  action  of  the  trial 
court,  contend  that  the  action  was  barred  by  the  stat- 
ute of  limitations  ;  the  first  cause  of  action  arising  in 
1887,  the  second  in  1889,  and  the  suit  not  having-  been 
brought  until  1894.  It  is  evident  that,  if  the  action 
may  be  maintained  at  this  late  date,  it  must  be  by  vir- 
tue of  section  12  of  the  Code  of  Civil  Procedure, 
providing-  that  actions  may  be  brought  "within  four 
years  ^'  *  "  for  relief  on  the  g-round  of  fraud,  but 
the  cause  of  action  in  such  case  shall  not  (be)  deemed  to 
have  accrued  until  the  discovery  of  the  fraud . "  In  order 
to  bring  the  case  within  the  exception  of  this  statute,  the 
plaintiif  pleads  "that  defendants  continued,  after  said 
18th  day  of  May,  1887,  to  be  directors  and  managing- 
officers  of  said  corporation,  and  contrived,  by  repeated 
false  statements  of  the  resources  and  liabilities  of  said 
corporation,  all  of  which  were  published  and  came  to 
the  notice  of  the  plaintiif  at  the  time  of  their  being- 
made  and  published,  or  shortly  thereafter,  and  were 
by  him  believed  to  be  true  and  relied  upon,  and  by 
fraudulently  declaring  unauthorized  dividends  on  its 
capital  stock,  that  the  corporate  business  might  falsely 
appear  to  be  profitable,  to  conceal  from  the  plaintiff  the 
condition  of  said  corporation  and  the  duty  of  said 
representations  ;  and  said  defendants  fraudulently^ 
knowingly,  and  willfully  so  concealed  its  condition 
that  plaintiff  did  not  discover  said  reports  and  rep- 
resentations to  be  false  until  on  or  about  the  1st  day 
of  April,  1894."  The  evidence  quite  clearly  shows 
that  the  plaintiff  did  not  in  fact  know  of  the  real  con- 
dition of  the  bank  until  about  the  time  of  its  failure. 
It  also  appears  that  reports  were,  from  time  to  time, 
published  of  the  condition  of  the  bank,  down  to  about 


462  cFFicERs  [vol  I 

Gerner  v.  I.I  c^ her 

The  time  of  its  failure,  and  that  such  reports  were  all 
false.  It  appears,  also,  that  dividends  were  declared 
from  time  to  time,  until  shortly  before  the  failure.  It 
affirmatively  appears,  however,  that  none  of  the  de- 
fendants, save  Mosher  and  Outcalt,  actually  knew  of 
the  condition  of  the  bank  or  the  falsity  of  the  reports, 
and  that  there  was  no  actual  intent  on  the  part  of  such 
other  defendants  to  mislead  the  plaintiff.  We  do  not 
think  that,  under  this  evidence,  the  district  court  would 
have  been  justified  in  instructing-  for  the  defendants  on 
the  plea  of  limitations,  and,  in  fact,  the  peremptory 
instruction  was  not  based  upon  that  g^round. 

It  is  contended  by  the  defendants  that  the  plaintiff, 

Du  becoming-  a  stockholder,  obtained  the  rig-ht  of  access 

to  the  books,  and  that  even  a  cursory  examination  of  the 

books  would    have  disclosed   the  falsity  of 

stockholders-      the  reports;  that  he  must,  therefore,  be  held, 

KiamiaatiOH  of  ^  r  i  r  i  i      i  j 

-Seeks.  on  account  or  such   means  oi  knowledg-e,  to 

have  actually  discovered  the  fraud  on  or 
about  the  time  when  he  boug-ht  the  stock.  Assuming- 
that  a  stockholder  has  an  unlimited  rig-ht  to  examine 
the  books  of  the  bank,  still  we  cannot  adopt  the  theory 
that  the  plaintiff,  immediately  on  purchasing-  the  stock, 
was  under  any  leg-al  oblig-ation  to  make  such  examina- 
tion for  the  purpose  of  ascertaining-  whether  he  had 
been  defrauded  in  the  purchase.  It  is  true  that  in  this 
state  rather  a  strict  construction  has  been  placed  upon 
this  section  of  the  statute  of  limitations,  and  it  is  here 
the  law  that  the  statute  beg-ins  to  run,  not  only  from 
the  actual  discovery  of  the  fraud,  but  from  the  time  of 
the  discovery  of  such  facts  as  would  put  a  person  of 
ordinary  intellig-ence  and  prudence  on  inquiry  which, 
if  pursued,  would  lead  to  such  discovery.  Parker  v. 
Kuhn,  21  Neb.  413,  32  N.  W.  74;  Wright  v.  Davis,  28 
Neb.  479,  44  N.  W.  490  ;  Gillespie  v.  Cooper,  36  Neb. 
775,  55  N.  W.  302  ;  State  v.  Boyd,  49  Neb.  303,  68  N. 
W.  510.  In  Gillespie  v.  Cooper  it  was  also  said  that 
the  party  defrauded  mustbedilig-ent  in  making-  inquiry; 
that  means  of  knowledg-e  are  equivalent  to  knowledg-e. 
But  it  was  stated,  in  the  same  connection,   that  a  clue 


B  CAS]  OFFICERS  463 

Gerner  v.  Mosher 

to  the  facts,  which  if  followed  up  diligently  would 
lead  to  a  discovery,  is  in  law  equivalent  to  a  discovery. 
None  of  the  cases  holds,  nor  are  we  aware  of  any  case 
elsewhere  which  holds,  that  a  man  must  be  so  keenly 
on  the  scent  of  efforts  to  defraud  him  that,  without 
knowledg-e  of  any  fact  which  would  lead  a  prudent 
man  to  suspect  that  he  had  been  defrauded,  he  is  bound 
to  make  investigations  which  he  is  not  obliged  to  make 
for  other  purposes,  merely  because  it  is  in  his  power  to 
make  such  investigations.  There  was  some  proof  in- 
troduced and  some  tendered  tending  to  show  that  Mr. 
Gerner,  considering  that  he  was  a  stockholder  only, 
and  not  a  director,  took  quite  a  keen  interest  in  the 
affairs  of  this  bank,  and  was  somewhat  active  concern- 
ing the  same,  but,  giving  such  evidence  its  utmost 
effect,  it  could  have  been  no  more  than  a  question  for 
the  jury  whether  or  not  he  thereby  became  apprised  of 
any  fact  which  imposed  upon  him  the  active  duty  of 
resort  to  an  examination  of  the  books.  Certainly,  in 
the  absence  of  all  grounds  of  suspicion,  he  cannot  be 
held,  as  a  matter  of  law,  to  have  been  compelled  to 
make  such  examination.  To  hold  stockholders  to  such 
a  degree  of  diligence  would,  in  the  case  of  many  cor- 
porations, cause  the  real  business  of  the  corporation  to 
be  seriously  impeded  by  the  invasion  of  stockholders 
for  such  purposes,  and,  in  the  case  of  banks,  would 
seriously  impair  the  right  of  secrecy  which  customers 
possess  as  to  the  state  of  their  accounts. 

Before  entering  upon  the  more  difficult  questions  re- 
lating to  the  merits  of  the  case,  it  will  be  convenient 
at  this  time  to  dispose  thereof  so  far  as  concerns  the 
defendants  Thompson,  Phillips,  Stuart,  and  Hamer. 
Neither  of  these  defendants  signed  either  of  the  reports 
which  the  plaintiff  claims  misled  him.  In  order  to 
charge  them,  the  plaintiff  alleged  that  the  reports  were 
made  with  the  knowledge,  assent,  and  co-operation  of 
the  defendants  last  named,  and  were,  as  each  of  them 
knew,  false  and  untrue.  The  nature  of  the  evidence 
on  this  point  is  accurately  stated  in  the  instruction  of 
the  trial  court,  as  follow^s  :   "Plaintiff  has  failed  in  his 


464  OFFICERS  [vol  r 

Gerner  :'.  Mosher 

evidence  to  produce  a  particle  of  testimony  even  tend- 
ing- to  show  that  either  Thompson,  Hamer,  Phillips,  or 
Stuart  knew,  assented,  or  co-operated  in  the  makino- 
or  publishing-  of  the  said  reports  ;  and  there  is  no  at- 
tempt in  the  evidence  on  the  part  of  the  plaintiff  tr 
contradict  the  testimony  g-iven  by  each  one  of  them 
touching;  their  having-  no  connection  with  the  said  re- 
ports on  which  plaintiff  g-rounds  his  cause  of  action  for 
deceit.  The  evidence  utterly  fails  to  show  that  either 
Thompson,  Hamer,  Phillips,  or  Stuart  was  gfuilty  of 
any  dishonest  or  fraudulent  conduct  in  the  making-  and 
publishing-  of  said  reports  or  either  of  them."  The 
plaintiff  seeks  to  avoid  the  effect  of  failure  of  proof  in 
this  report  by  the  arg-ument  that  the  four  directors, 
not  joining-  in  the  reports  were  bound,  as  directors,  tc 
know  the  condition  of  the  bank,  and  conclusively  pre- 
sumed, therefore,  to  know  the  falsity  of  the  reports, 
and  that  the  reports,  being-  a  corporate  act,  are  their 
act  as  well  as  those  actively  participating-. 

We  shall  hereafter  have  occasion  to  discuss  the  duties 
of  directors  of  national  banks,  but  such  discussion  is  not 
immediately  pertinent  to  the  question  before  us.  The 
reports  relied  on  as  constituting  the  false 
fion!' **'*"*'*''''  representations  were  made  by  virtue  of  sec- 
tion 5211  of  the  Revised  Statutes  of  the 
United  States,  requiring-  reports  to  be  made  to  the 
comptroller  of  the  currency,  "verified  by  the  oath  or 
affirmation  of  the  president  or  cashier  of  such  associa- 
tion, and  attested  by  the  sig-nature  of  at  least  three  of 
the  directors."  The  statute  further  requires  their 
publication.  AVhile,  in  a  technical  sense,  the  report 
being-  required  of  the  association,  it  is  a  corporate  act, 
nevertheless  it  is  not  such  a  corporate  act  as  is  or  must 
be  performed  by  the  directors  acting-  as  a  board.  Nor 
are  all  the  directors  required  to  therein  participate.  It 
is  not  necessary  that  the  president  and  cashier  should 
both  take  part.  The  report  may  be  verified  by  either 
of  these  officers,  and  it  is  sufficient  if  it  be  attested  by 
the  sig-natures  of  three  of  the  directors.  The  languag-e 
clearly  shows  that,  in  attesting,  such   directors  act  as 


B  CAS]  OFFICERS  465 

Gerner  v.  Mosher 

individual  directors,  and  not  as  a  board.  Beingf  a  cor- 
porate act,  a  report  made  by  the  desig-nated  officers 
would  probably  bind  the  corporation.  In  Prescott  :-. 
Haug-hey,  65  Fed.  653,  it  was  said  that  false  represen- 
tations in  such  a  report,  if  made  under  color  of  office, 
were  entirely  outside  of  the  official  duties  of  the  direct- 
ors; that  neither  the  law  nor  the  obligations  of  their 
office  made  it  any  part  of  their  duty  to  utter  and  publish 
false  and  fraudulent  advertisements  and  reports.  It 
follows  from  this,  if  it  were  not  true  independently 
thereof,  that  a  director  cannot  be  held  liable  because 
he  did  not  join  in  such  an  ultra  vires  act.  The  corpo- 
ation  may  be  bound  by  the  act  of  its  constituted  officers, 
but,  when  it  is  sought  to  charge  officers  individually 
for  ultra  vires  acts  or  for  misconduct,  it  is  only  those 
who  participate  therein  who  are  liable,  in  the  absence, 
of  course,  of  conspiracy  or  indirect  participation,  which 
was  here  not  only  unproved,  but  was  affirmatively 
disproved.  As  to  Thompson,  Stuart,  Phillips,  and 
Hanier,  it  follows  that  the  judgment  must  be  affirmed. 
The  peremptory  instruction  of  the  district  court  as 
to  the  remaining  defendants  proceeded  on  the  ground 
that  the  reports  relied  on  as  constituting  the  false  rep- 
resentations were  made  for  the  information 
of  the  comptroller  of  the  currency,  and  Reports!  ^*"''^~ 
published  for  the  information  of  those  deal- 
ing with  the  corporation  itself,  and  that  they  constituted 
no  representation  to  other  classes  of  persons,  as  to  one 
contemplating  an  investment  in  the  stock  of  the  corpora- 
tion; that,  therefore,  Gerner  had  no  right  to  rely  on 
the  statements.  We  do  not  think  that  this  position  is 
sound.  It  certainly  is  not  true,  as  contended  by  the 
defendants,  that  the  sole  object  of  the  report  is  the 
information  of  the  comptroller  of  the  currency,  because 
that  object  would  be  fully  satisfied  with  the  require- 
ment that  the  report  should  be  transmitted  to  him.  •  In 
addition  to  this,  a  newspaper  publication  is  required 
by  the  statute,  and  the  corporation  is  required  to  furnish 
to  the  comptroller  proof  of  such  publication.  As  seen, 
publication  is  not  necessary  for  the  information  of  the 

B  CAS— 30 


466  OFFICERS  [vol  I 

Gerner  v.  Mosher 

cotdptroller,  and  it  certainly  is  not  required  for  the 
mere  amusement  of  the  public.  We  think  the  object 
is  to  afford  public  information  to  all  persons  having-  or 
contemplating'  business  transactions  into  which  the 
condition  of  the  bank  enters  as  a  material  factor.  Bank 
V.  Thorns,  28  Wkly.  Law  Bui.  164,  while  not  the 
decision  of  a  court  of  last  resort,  is  enforced  by  so 
clear  and  so  able  an  opinion  that  it  log-ically  carries 
more  weig-ht  than  many  decisions  of  higher  courts.  It 
was  there  held  that  the  purpose  of  requiring  publication 
was  of  the  general  character  we  have 
indicated,  and  that  one  who  was  induced 
to  lend  money  to  a  stockholder  on  the  security  of  stock 
in  the  bank  had  his  remedy  against  the  officers  fraud- 
ulently making  the  false  reports.  In  Graves  v.  Bank, 
10  Bush,  23,  it  was  held  that  persons  who  were  induced 
to  become  sureties  on  the  bond  of  a  cashier  in  reliance 
on  such  a  report,  which  by  its  falsity  concealed  the 
cashier's  past  dishonesty,  were  by  reason  thereof  dis- 
charged from  liability.  InPrewittt-.  Trimble,  92  Ky. 
176,  17  S.  W.  356,  a  purchaser  of  stock  was  held  entitled 
to  a  rescission  of  the  contract,  the  vendor  of  the  stock 
in  that  case  being  an  officer  who  joined  in  the  report. 
In 'Tate  v.  Bates  (N.  C.)  24  S.  E.  482,  a  depositor  was 
held  entitled  to  relief.  Such,  also,  was  the  case  in 
Seale  v.  Baker,  70  Tex.  283,  7  S.  W.  742.  Morse  v. 
Swits,  19  How.  Prac.  275,  is  another  case  where  the 
purchaser  of  stock  was  held  entitled  to  relief  for  fraud 
in  the  published  reports.  The  last  case  is  criticised 
by  the  defendants  because  it  cites  Bedford  v.  Bagshaw, 
4  Hurl.  &  N.  538,  and  that  case  was  overruled  by  the 
house  of  lords  in  Peek  v.  Gurney,  L/.  R.  6  H.  Iv.  377. 
The  reasoning  in  Morse  v.  Swits  proceeds,  however, 
on  independent  grounds,  and  Bedford  f.  Bagshaw-  went 
much  further  than  any  of  the  cases  we  have  cited.  In 
tha/t  case  the  listing  of  stock  on  the  stock  exchange 
was  treated  as  a  public  representation  that  the  stock 
was  not  less  than  two-thirds  paid,  the  rules  of  the  stock 
exchange  requiring  such  payment  as  a  condition  of 
listing;  while  the  case  overruling  it  was  to  the  effect 


OB  CAS]  OFFICERS  467 

Gerner  v.  Mosher 

that  a  prospectus  of  an  intended  company  Is  for  the 
purpose  of  invitingf  persons  to  become  allottees  of 
shares,  and  that,  having-  served  that  purpose,  its  func- 
tion is  exhausted,  and  it  may  not  be  relied  on  by  the 
purchaser  of  shares  after  the  org-anization  of  the  com- 
pany. It  will  be  seen  that  the  two  Eng^lish  cases  are 
both  entirely  aside  from  any  question  now^  before  us. 
In  none  of  the  cases  has  the  court  held  that  only  those 
dealing  directly  with  the  bank,  as  depositors  or  holders 
of  its  circulating-  notes,  are  entitled  to  the  information 
g-iven  by  the  report.  While  that  doctrine  has  been 
arg-ued  in  other  cases,  as  in  this,  we  cannot  find  that 
it  has  ever  been  sustained,  and  we  have  no  doubt  that 
the  object  of  cong^ress  in  requiring"  publication  was  as 
broad  as  w'e  have  above  stated  it.  That  being-  the 
object  of  the  law,  such  reports  become  a  public  rep- 
resentation to  all  classes  of  persons  falling-  within  that 
object.  This  discussion  argumentatively  disposes  of 
the  further  contention  of  the  defendants  that  they  are 
not  liable  because  the  publication  was  not 
voluntary,  but  was  one  required  by  law.  r*s"ntaUon8.**''' 
We  know^  of  no  rule  of  law  which,  holding- 
men  responsible  for  voluntary  statements,  excuses 
them  for  misrepresentations  in  statements  which  the 
law  requires  them  to  make  for  the  very  purpose  that 
they  may  be  relied  on. 

At  this  point  the  cases  of  Mosher  and  Outcalt 
diverg-e  from  that  of  Yates.  As  already  stated,  Mosher 
was  the  president  of  the  bank  and  Outcalt  its  cashier. 
The  proof  shows  that  the  affairs  of  the  bank 
were  larg-ely  conducted  by  Mosher,  without  o?ofH~?r*'**"^' 
particular  supervision  by  other  officers. 
There  is  also  some  proof  of  direct  falsification  of  the 
bank's  records  by  Mosher  himself.  Outcalt  verified 
the  reports.  It  can  hardly  be  that  the  president  and 
cashier  of  a  bank,  actively  controlling-  and  manag-ing- 
its  business,  can  be  excused  for  g-ross  ignorance 
of  the  bank's  condition.  Moreover,  the  falsifications 
here  complained  of  were  not  in  the  books  of  the  bank, 
but  in  making-  up  the  report  from  those  books;  there 


468  OFFICERS  [voiv  r 

Gerner  v.  Mosher 

being"  most  g-laring  differences  between  the  daily  bal- 
ance book  of  the  bank,  showing-  at  a  g-lance,  its  condi- 
tion on  the  days  to  which  the  reports  related,  and  the 
reports  themselves.  Very  clearly,  if  Gerner  had  a 
rig-ht  to  rely  on  the  reports,  there  was  sufficient 
evidence,  at  least  to  g-o  to  the  jury,  for  the  purpose  of 
chargfing-  Mosher  and  Outcalt,  and  the  judg^raent  as  to 
them  must  be  reversed. 

The  directors  attesting-  the  reports  were  Mosher, 
Holmes,  and  Yates.  Holmes  died  before  the  action 
was  begfun,  and,  as  already   stated,  the  case  seems  to 

have  been  abandoned  as  to  his  administra- 
-rfi^i'ifou'^or.      trix.       Yates  was    merely    a   director.     He 

was  not  otherwise  an  officer  or  employee  of 
the  bank,  and  his  liabiHt\%  if  any  exists,  depends  upon 
his  action  as  a  director  alone.  It  therefore  becomes 
necessary  to  consider  what  was  meant  by  the  use  of  the 
word  "attest,"  in  section  5211  of  the  Revised  Statutes, 
requiring-  reports  to  be  attested  by  the  sig-uature  of  at 
least  three  of  the  directors.  It  will  be  observed  that 
the  word  "attest"  could  not  have  been  there  used 
merely  in  the  sense  of  witnessing-  the  sig-nature  of  the 
president  or  cashier.  The  langfuag-e  is  not  that  such 
sig-nature  shall  be  attested,  but  that  the  reports  shall 
be  verified  by  the  oath  or  aflBrmation  of  the  president 
or  cashier,  and  attested  by  the  sig-nature  of  at  least 
three  of  the  directors.  It  is  the  report  itself,  and  not 
the  act  of  the  president  or  cashier,  which  is  so  attested. 
Furthermore,  in  the  following-  section,  national  banks 
are  required  to  report  to  the  comptroller,  within  10 
days  after  declaring-  any  dividend,  the  amount  of  such 
dividend,  and  the  amount  of  net  earningfs  in  excess 
thereof,  and  "such  report  shall  be  attested  by  the  oath 
of  the  president  or  cashier  of  the  association."  In  the 
latter  section  the  word  "attest"  is  certainly  used  in 
the  sense  of  certifying-,  in  the  manner  indicated,  to  the 
correctness  of  the  report,  and  its  use  in  that  evident 
sense,  in  such  close  juxtaposition  to  the  lang-uag-e  we 
are  considering-,  reinforces  the  conclusion  that  by  the 
attestation    is  meant  something-   more  than  the  mere 


3  CAS]  OFFICERS  469 

Gerner  v.  Mosher 

witaessing-  of   the    report.     It  is  true  that  it  has  been 
frequently  held  in  this  court  that,  in  an  action  for  false 
representations,    it  is  not  necessary  to  aver  or  prove  a 
scienter.     Foley  v.  Holtry,  43  Neb."  133,  61  N.  W.  120: 
Johnson  v.  Gulick,  46  Neb.  817,  65  N.  W.  883;  Moore 
V.  Scott,  47  Neb.  346,  66  N.   W.    441.     But  it  does  not 
follow    that  one  making-  a  statement  is  charg^ed  abso- 
lutely with  the  consequences  of  its  falsity  in  fact,reg-ard- 
less  of  the  form  of  the  statement  and  the  circumstances 
under  which  it  is  made.    Indeed,  in  the  cases  cited,  the 
jang-uag-e  used  in  one,  and  implied  in  the  others,  is  that 
une  is  liable  for  the  consequences  of  the  false  statement 
only  when  it  is  made  as  a  positive  representation  of  an 
existing-  fact.     In  Moore    v.    Scott  the  statement  was 
qualified   by  the  person's  making-  the    representation 
g-iving-  the  source  of  his  information  as  "a  reliable  per- 
son," and  stating-  his  belief  on  that  g-round,  and  it  was 
held  that  he  was  not  responsible  thereby  for  the  truth 
of  the  ultimate  statement,  but  only  for  the  truth  of  his 
receiving- such  information  from  a  reliable  person.     We 
must,   therefore,   inquire   whether  Yates  attested   this 
^report  as  a  positive  statement  that  the  condition  of  the 
bank    w^as  as  represented  therein   or   whether,   on  the 
other   hand,    the  attestation    was  qualified.     The  ma- 
jority of  the  court  is  of  the  opinion  that  it  was  positive. 
Commissioner  Ryan  and  the  writer  think  it  was  qual- 
ified.    The   question  involves  a    consideration    of    the 
duties    of    directors    in    national    banks,    and,    as  that 
question  depends  upon  the  construction  of  the  national 
banking-  act,  the  federal  decisions  on  the  point  conclude 
us.     The    question   was  considered  with  g-reat  care  in 
Brig-g-s  V.  Spaulding-,   141   U.   S.  132,  11  Sup.  Ct.  924, 
and,  while  four  justices  there  dissented  on  the  g-round 
that   directors  should  be   held  to   a    hig-her  dep-ree  of 

...  o  o 

accountability  than  the  majority  opinion  declares,  we 
are  bound  to  accept  the  opinion  of  the  majority  as 
controlling-.  The  law  there  declared  is  substantially 
as  follows:  That  the  deg-ree  of  care  required  of  direct- 
ors depends  upon  the  subject  to  which  it  is  to  be 
applied,    and    each    case    to  be  determined  from  all  its 


470  OFFICERS  [vol  I 

Gerner  v.  Mosher 

circumstances;  that  directors  are  not  insurers  of  the 
fidelity  of  the  ag-ents  whom  they  appoint,  nor  can  they 
be  held  responsible  for  the  misconduct  of  such  agents,, 
unless  the  loss  resultino-  is  a  consequence  of  their  own 
neg-lect  of  duty;  that  directors  of  a  national  bank  must 
exercise  ordinary  care  and  prudence  in  the  administra- 
tion of  the  affairs  of  the  bank,  and  this  includes  some- 
thing- more  than  officiatiuof  as  fig"ureheads;  they  may 
commit  the  banking-  business  to  the  officers,  but  this 
does  not  absolve  them  from  the  duty  of  reasonable 
supervision,  nor  should  the}'  be  permitted  to  shield 
themselves  from  liability  because  of  want  of  knowl- 
edg-e  of  wrong-doing-,  if  that  ig-norance  is  the  result  of 
g-ross  inattention.  The  remaining- points  decided  in  the 
case  cited  relate  to  the  application  of  the  particular 
facts  of  that  case  to  the  rules  laid  down.  Following- 
the  case  cited,  the  circuit  court  for  the  Northern  dis- 
trict of  New  York  has  held  that  where  the  affairs  of 
a  bank  were  manag-ed  solely  by  the  cashier,  who  was 
reputed  and  universallv  believed  to  be  honest  and  capa- 
ble, directors  who  knew  little  of  the  business  of  bank- 
ing- were  not  g-uilt}^  of  neg-lig-ence  because  the}'  failed  to 
examine  the  books,  there  being-  no  g-rounds  of  suspicion 
known  to  them.  Warner  v.  Penoyer,  82  Fed.  181. 
This  being-  the  rule  of  duty  imposed  on  national  bank 
directors,  we  think  it  follows  that,  when  a  director 
attests  a  report,  he  does  so  as  a.  director,  and  with  a 
view  only  to  such  knowledg-e  of  the  condition  of  the 
bank  as  the  exercise  of  his  duties  as  a  director  imposes 
upon  him.  The  verification  by  the  oath  of  one  of  the 
chief  active  officers  of  the  bank  has,  of  course,  a  more 
extended  scope  as  a  representation;  but  the  director  is 
not  required  to  make  a  special  examination  for  the  pur- 
pose of  attesting-,  and  attests  a  report  only  as  the  re- 
sult of  such  knowledg-e  as  the  proper  discharg-e  of  his 
duties  as  director  imposes  upon  him.  That  is,  reading' 
into  the  report,  as  we  must,  the  director's  leg-al  duty, 
the  words  on  these  reports,  "Correct:  Attest,"  mean, 
in  effect:  "We,  as  directors,  certify  to  the  correctness 
of  the  foreg-oing-  report,  basing-  our  certification  on  the 


B  CAS]  OFFICERS  471 

Gerner  v.  Mosher 

knowledg-e  which  we  possess  by  virtue  of  a  proper  dis- 
chargfe  of  our  duties  as  directors." 

It  is  not,  therefore,  an  absolute  certification  of  the 
correctness  of  the  report,  but  is  qualified  by  the  lim- 
ited means  of  knowledgfe  which  a  director  may  law- 
fully possess,  Lookino-  into  the  evidence  with  reg^ard 
to  Yates,  we  find  that  he  was  actively  eng-ag-ed  in 
other  business,  requiring-  practically  all  his  time  ;  that 
he  had  never  been  eng-ag"ed  in  the  banking-  business  ; 
that  he  had  never  kept  books  of  a  bank,  and  in  attest- 
ing- the  reports  he  relied  upon  the  president,  cashier, 
and  employees  for  their  correctness.  They  were 
brought  to  his  oiSce,  and  he  sig-ned  them  ;  assuming-, 
therefore,  that  they  were  correct.  He  was  himself  a 
depositor,  and  lost  money  throug-h  the  failure  of  the 
bank,  and  had  the  utmost  confidence  in  the  bank  to  the 
time  it  failed.  The  foreg-oing-  is  from  his  own  testimon}^. 
Examining-  this  proof,  tog-ether  with  the  g-eneral  testi- 
mony as  to  the  manner  in  which  the  bank  was  manag-ed, 
we  think  there  was  evidence  sufficient  to  g-o  to  the  jury  to 
determine  whether  Yates'  ig-norance  of  the  condition 
of  the  bank  and  the  falsity  of  the  reports  was  the  result 
of  that  g-ross  inattention  which  in  Brig-g-s  v.  Spauld- 
ing-  is  held  necessary  to  charg-e  the  director  with  a 
personal  liability.  It  seems  that  he  attended  g-eneralh^ 
the  meetings  of  the  directors,  but  that  he  took  no  other 
steps  to  investig-ate  the  conduct  of  the  business,  repos- 
ing- confidence  and  depending-  altog-ether  on  the  sup- 
posed integrity  of  the  officers  of  the  bank.  Whether, 
under  the  circumstances,  he  was  justified  in  so  doing-, 
in  assuming-  the  reports  to  be  correct  and  in  attesting- 
them,  we  think  was  fairly  a  question  of  fact,  under  the 
rules  laid  down  in  Brig-gs  v.  Spaulding-,  and  therefore 
it  was  error  to  peremptoril}^  instruct  the  jury  to  find  in 
his  favor.     The  judg-ment  as  to  him  must  be  reversed. 

Affirmed  as  to  Thompson,  Phillips,  Stuart,  and 
Hamer.  Reversed  and  remanded  as  to  Mosher,  Outcalt, 
and  Yates. 

Ryan,  C,  concurs. 

NoRVAL,  J,     While    we   are   all   ag-reed   as    to  the 


472  OFFICERS  [vol,  I 

Gerner  v.  Mosher 

judg"raent  that  should  be  entered  herein,  the  majority 
of  the  court  do  not  concur  in  the  proposition  expressed 

by  Irvine,  C,  to  whom  was  assig-ned  the 
«a™«'-*««t,at'»''  duty  of  preparing-  the  opinion  of  the  court, 
»irect»rs.  that    the  attestation  of  reports  of  a  national 

bank  to  the  comptroller  of  the  currency  by 
the  directors  thereof  does  not  amount  to  an  absolute  rep- 
resentation that  such  report  is  true,  just,  and  correct. 
The  learned  commissioner  cites,  in  support  of  the 
doctrine  announced,  Brig-gfs  v.  Spaulding,  141  U.  S. 
132,  11  Sup.  Ct.  924.  This  case  is  not  controlling- 
upon  the  question  before  us,  and  is  disting-uishable 
from  the  case  at  bar.  That  was  a  suit  by  a  receiver  of 
a  national  bank  ag-ainst  its  directors  to  recover  losses 
and  damag*es  sustained  by  the  bank  by  reason  of 
the  alleg-ed  neg-lect  of  duty  and  wrong-ful  con- 
duct of  the  defendants,  while  the  present  action 
was  not  instituted  for  and  in  behalf  of  the  Capital 
National  Bank,  or  by  an  individual  creditor  thereof, 
but  by  one  who  was  induced  to  purchase  stock 
of  the  bank  in  reliance  upon  the  false  report  of 
the  condition  of  resources  and  liabilities  of  the  corpo- 
ration made  under  oath  of  its  president  and  cashier, 
and  attested  by  certain  of  its  directors.  That  the 
result  probably  would  have  been  different  in  Brig-gs  z*. 
Spaulding-,  sicpra,  if  that  suit  had  been  g-rounded  as 
the  present  one,  or  had  been  brought  by  a  creditor  to 
recover  loss  occasioned  by  his  having  been  induced  to 
make  deposits  in  the  bank  throug-h  the  false  statements 
as  to  its  financial  condition,  made  to  the  comptroller, 
is  clearly  inferable  from  the  following-  excerpt  from  the 
majority  opinion,  prepared  by  Chief  Justice  Ful- 
ler: "The  theor}^  of  this  bill  is  that  the  defendants 
are  liable,  not  to  stockholders  nor  to  creditors,  as  such, 
but  to  the  bank,  for  losses  alleg-ed  to  have  occurred  dur- 
ing- their  period  of  office,  because  of  their  inattention. 
If  particular  stockholders  or  creditors  have  a  cause  of 
action  against  the  defendants  individually,  it  is  not 
soug-ht  to  be  proceeded  on  here,  and  the  disposition  of 
the    questions   arising-    thereon    would    depend    upon 


B  CAS]  OFFICERS  473 

Gerner  v.  Mosher 

■different  considerations.  *  "  '■  Treated  as  a  cause 
of  action  in  favor  of  the  corporation,  a  liability  of  this 
kind  should  not  lig-htly  be  imposed,  in  the  absence  of. 
any  element  of  positive  misfeasance,  and  solely  upon  the 
o-round  of  passive  neg-ligence  ;  and  it  must  be  made  to 
appear  that  the  losses  for  which  defendants  are 
required  to  respond  were  the  natural  and  necessary 
consequence  of  omission  on  their  part."  A  bare 
majority  of  the  court  concurred  in  the  decision  in 
Brig-g-s  V.  Spaulding-,  supra,  four  of  the  justices 
'having-  dissented  therefrom.  The  able  dissenting- 
opinion  of  JusTiCR  Harlan,  filed  therein,  in  which 
Justices  Gray,  Brewer,  and  Brown  concurred,  held 
that  the  directors  of  a  national  bank  could  not  abdicate 
their  duties  and  functions,  and  leave  the  admin- 
istration and  manag-ement  of  its  affairs  solely  to 
executive  officers,  but  that  the  law  requires  of  direct- 
ors "such  dilig-ence  and  supervision  as  the  situation 
and  the  nature  of  the  business  requires.  Their  duty 
is  to  watch  over  and  g-uard  the  interests  committed  to 
them.  In  fidelity  to  their  oaths,  and  to  the  oblig^ations 
they  assume,  they  must  do  all  that  reasonably  prudent 
and  careful  men  oug-ht  to  do  for  the  protection  of  the 
interests  of  others  intrusted  to  their  charg-e."  But  if 
the  rule  of  the  majority  in  Brig-g-s  v.  Spaulding-,  supra, 
as  to  the  deg-ree  of  dilig-ence  required  of  directors  of 
3iational  banks,  be  accepted  as  sound,  yet  it  is  without 
controlling-  force  in  the  present  action.  As  to  creditors 
of  the  corporation,  and  others  not  connected  with  the 
bank,  most  certainly  a  higfher  deg-ree  of  dilig-ence  is 
required  of  the  directors  than  obtains  in  a  controversy 
between  them  and  the  bank  itself.  In  the  case  to  which 
reference  has  been  made,  the  wrecking-  of  the  bank  was 
not  traceable  to  the  false  reports  made  b}^  the  directors 
to  the  comptroller;  hence  the  question  whether  the  bank 
directors  are  individually  liable  for  an}^  losses  oc- 
casioned by  their  having-  attested  false  statements  as  to 
the  condition  of  the  corporation  was  not  involved  in 
the  case  or  necessary  to  a  decision. 

The  defendants  in  the  present  suit,  who,  as  directors. 


474  OFFICERS  [voiv  I 

Gerner  v.  Mosher 

attested  the  reports  made  by  the  Capital  National  Bank 
to  the  comptroller  of  the  currency,  by  such  act  vouched 
for,  or  certified  to,  the  absolute  truthfulness  of  the 
statements  therein  contained,  and  not  that  the  report 
was  correct,  so  far  as  the  directors  knew  or  had  been 
advised  by  the  proper  performance  of  their  duties  as 
directors.  The  means  of  information,  this  record  shows, 
were  accessible  to  them.  It  was  their  duty  to  know 
whether  the  reports  were  correct  or  not.  For  them  to 
have  ascertained  the  untruthfulness  of  the  reports  re- 
quired no  extended  examination  of  the  books  of  the 
bank  or  into  the  condition  of  its  affairs.  A  mere  com- 
parison of  any  report  with  the  daily  balance  sheet  of 
the  bank  for  the  same  date  would  have  revealed  the  ab- 
solute falsit}'^  of  such  report.  It  is  no  answer  to  say 
that  they  were  not  aware  of  the  insolvent  condition  of 
the  bank.  Section  5147  of  the  Revised  Statutes  of  the 
United  States  requires  "each director,  when  appointed 
or  elected,  shall  take  an  oath  that  he  will,  so  far  as  the 
duty  devolves  upon  him,  dilig-ently  and  honestly  ad- 
minister the  affairs  of  such  association,"  The  scope 
of  the  oblig-ation  assumed  by  the  director  of  a  national 
bank  is  indicated  by  the  oath  he  is  required  to  take. 
He  is  under  obliofatiou  not  only  to  honestly,  but  dili- 
g"ently,  administer  the  affairs  of  the  corporation  in  which 
he  is  a  director.  He  may  not  sit  supinely  by,  and  per- 
mit the  executive  officers,  which  he  has  helped  to  elect, 
to  rob  and  plunder  the  bank,  and  then  excuse  himself 
from  individual  liability  by  showing-  that  he  was  un- 
aware of  the  true  condition  of  the  bank  or  what  was 
transpirinor  around  him.  The  law  demands  and  requires 
that  he  dilig-ently  administer  the  affairs  of  the  associa- 
tion. In  the  lang-uaofe  of  SeverENS,  J.,  in  Gibbons  v. 
Anderson,  80  Fed.  345:  "The  idea  which  seems  to  pre- 
vail in  some  quarters,  that  a  director  is  chosen  because 
he  is  a  man  of  o-ood  standing- and  character,  and  on  that 
account  will  g-ive  reputation  to  the  bank,  and  that  his 
only  office  is  to  delegfate  to  som.e  other  person  the 
manag-ement  of  its  affairs,  and  rest  on  that  until  his 
suspicion  is  aroused,   which  generallv  does  not  happen 


B  CAS]  OFFICERS  '  475 

Gerner  v.  Mosher 

until  the  mischief  is  done,  cannot  be  accepted  as  sound. 
It  is  sometimes  sug-gfested,  in  effect,  that,  if  larg^er  re- 
sponsibilities are  devolved  upon  directors,  few  men 
would  be  willing-  to  risk  their  character  and  means  bj 
taking-  such  an  office;  but  cong-ress  had  some  substan- 
tial purpose  when,  in  addition  to  the  provision  for 
executive  officers,  it  further  provided  for  a  board  of 
directors  to  manag-e  the  bank  and  administer  its  affairs. 
The  stockholders  mig-lit  elect  a  cashier  and  a  president 
as  well.  The  banks  themselves  are  prone  to  state  and 
hold  out  to  the  public  who  compose  their  boards  of  di- 
rectors. The  idea  is  not  to  be  tolerated  that  they  serve 
as  mere  g-ilded  ornaments  of  the  institution,  to  enhance 
its  attractiveness,  or  that  their  reputation  should  be 
as  a  lure  to  customers.  What  tlie  public  suppose,  and 
have  the  rig-ht  to  suppose,  is  that  those  men  have  been 
selected  by  reason  of  their  hig-h  character  for  integ-rity, 
their  sound  judg-ment,  and  their  capacity  for  conducting- 
the  affairs  of  the  bank  safely  and  securely.  The  public 
act  on  this  presumption,  and  trust  their  property  with 
the  bank  in  the  confidence  that  the  directors  will  dis- 
charge a  substantial  dut3\  How  long-  w^ould  an^" 
national  bank  have  the  confidence  of  depositors  or  other 
creditors  if  it  were  given  out  that  these  directors,  whose 
names  so  often  stand  at  the  head  of  its  business  cards 
and  advertisements,  and  who  are  always  used  as  make- 
weig-hts  in  its  solicitations  for  business,  would  onl}-  se- 
lect a  cashier,  and  surrender  the  managfement  to  him? 
It  is  safe  to  say  such  an  institution  w^ould  be  shunned 
and  could  not  endure.  It  is  inconsistent  with  the  pur- 
pose and  policy  of  the  banking*  act  that  its  vital  interests 
should  be  committed  to  one  man,  without  oversig-ht  and 
control."  See  Williams  v.  McKay,  40  N.  J.  Eq.  189: 
Martin  v.  Webb,  110  U.  S.  7,  3  Sup.  Ct.  428. 

In  our  view,  whether  the  attesting- directors  possessed 
knowledg-e  of  the  falsity  of  their  reports  is  wholly  im- 
material. They  were  in  fact  false  and  untrue,  and 
those  who  deposited  money  with  the  bank,  or  who  pur- 
chased stock  of  the  corporation,  in  reliance  upon  the 
truthfulness   of  the   contents  of  those  reports,  were  as 


476  -  OFFICERS  [vol,  I 

Gerner  v.  Mosher 

much  deceived  and  damao-ed  thereby  as  thoug-h  the  di- 
rectors when  they  sig-ned  the  reports  knew  them  to  be 
false.  That  they  were  innocent  of  the  true  situation 
or  condition  of  the  affairs  of  the  bank  is  wholly  an  un- 
important consideration,  since  proof  of  a  scienter  is  not 
necessary  to  a  recovery.  This  court  has  frequently 
asserted  that,  to  maintain  an  action  for  false  representa- 
tion, it  is  not  essential  that  it  be  shown  that  they  were 
intentionally  or  knovving-ly  made  by  the  defendant. 
This  is  the  rule  in  ordinary  causes,  and  no  valid  reason 
can  be  sug-o-ested  or  pointed  out  why  the  same  principle 
should  not  apply  in  actions  for  deceit  ag-ainst  the  direct- 
ors of  a  banking-  corporation.  Certainly,  no  case  has 
come  under  our  observation  which  has  made  an  excep- 
tion in  their  favor. 

In  Miller  v.  Howard  (Tenn.  Sup.)  32  S.  W.  305,  it 
was  disclosed  that  the  directors  of  a  national  bank,  on 
its  suspension,  issued  a  circular  stating-  that  the  bank 
was  solvent,  and  would  open  within  60  days,  and  au- 
thorized the  officers  to  receive  money  on  special  deposit, 
and  keep  it  in  the  bank  vaults,  subject  only  to  the  check 
of  the  depositor.  Subsequently,  a  receiver  for  the  bank 
was  appointed,  and  the  money  deposited  pursuant  to 
said  circulars  was  turned  over  to  him.  It  was  held 
that  the  directors  were  personally  liable  for  the  amount 
of  such  deposits.  Wilkes,  J. ,  in  the  course  of  his  opin- 
ion, used  this  apposite  lang-uag-e:  "Directors  are  not 
mere  fig-ureheads,  with  no  duties  to  perform,  and  with 
the  liberty  of  leaving-  matters  of  this  character  to  their 
president  and  cashier,  and  relieving-  themselves  of  lia- 
bility and  duty,  by  placing- special  funds  they  are  under 
obligation  to  deliver  to  special  depositors  in  the  hands 
of  third  persons,  and  then  leaving-  it  to  their  depositors 
to  litig-ate  with  such  third  persons  over  their  claims  and 
rig-hts.  "  *  '^''  This  is  not  a  case  of  want  of  ordi- 
nar}''  care  on  the  part  of  the  directors,  but  a  case  of  posi- 
tive, active,  misconduct,  which  resulted  in  injury  to 
complainant,  and  for  which  they  are  liable  to  him." 

In  Cross  v.  Fisher,  65  L.  T.  (N.  S.)  114,  with  the 
knowledo-e   and  consent  of  the    directors  of  a   building- 


B  CAS]  OFFICERS  477 

Gerner  v.  Mosher 

society,  advertisements  were  issued  by  the  secretary 
inviting"  the  loaning  of  money  to  it.  Money  advanced 
to  the  society  was  paid  to  the  secretary,  who  receipted 
therefor,  but  did  not  enter  the  proper  amount  on  the 
books  of  the  society,  and  by  reason  thereof  the  secre-r 
tary  was  enabled  to  appropriate  to  his  own  use  a 
larg"e  sum  of  money,  and  upon  his  absconding-  it  was 
discovered  that  the  sum  borrowed  by  the  society  was 
in  excess  of  the  amount  allowed  by  its  rules.  It  was 
held,  in  an  opinion  by  MaTHEW,  J.,  that  the  directors 
were  personally  liable  for  the  amounts  borrowed  by 
the  society  in  excess  of  its  borrowing-  powers. 

Bank  v.  Thorns,  28  Wkly.  Law  Bui.  164,  discloses 
the  following-  state  of  facts:  The  executive  officers  of 
a  national  bank  made  reports  to  the  comptroller  of  the 
currency,  under  oath,  of  the  assets  and  liabilities  of  the 
corporation,  and  the  same  were  attested  by  three  of  the 
directors.  These  reports  w^ere  published  according-  to 
law,  and  disclosed  the  bank  to  be  in  a  hig-hly  prosper- 
ous financial  condition,  while  in  fact  the  statements  in 
said  reports  were  almost  entirely  false,  and  the  bank 
at  the  time  was  almost  insolvent.  Relying-  upon  the 
truth  of  the  reports,  plaintifT  loaned  a  stockholder  of 
the  bank  money,  and  received  as  collateral  security  a 
number  of  shares  in  said  bank,  which  would  have  been 
ample  security  had  the  reports  been  true,  but  in  fact 
th.e  stock  w^hen  the  loan  was  made  was  worthless. 
The  borrower  was  insolvent,  and  the  loan  was  made 
solely  on  the  credit  of  the  stock  so  pledg-ed,  and  upon 
the  value  thereof  as  the  same  appeared  from  the  said 
reports.  Plaintiff  broug-ht  an  action  for  deceit  ag-ainst 
the  attesting-  directors  of  the  insolvent  bank,  and  the 
court  held  they  were  individually  liable  for  the  dam- 
ag-es  sustained. 

Tate  V.  Bates,  118  N.  C.  287.  24  S.  E.  482,  was  an 
action  by  the  state  treasurer  of  North  Carolina  ag-ainst 
the  directors  of  an  insolvent  bank  personally  to  recover 
for  his  loss  of  deposits.  Tate  claimed  that  he  was 
induced  to  make  the  deposits,  and  permitted  the  same 
to  remain  in  the  bank  by  false  and  misleading-  published 


478  OFFICERS  [vol  I 

Gerner  v.  ivlosher 

statements  sworn  to  by  the  president  and  cashier,  and 
verified  by  three  directors,  showing-  that  the  bank  was 
solvent,  its  capital  unimpaired,  and  that  it  had  a  surplus 
on  hand.  Thecourt  in  the  opinion  say  :  "The  directors 
are  conclusively  presumed  to  know  the  condition  of  the 
bank.  Hauser  v.  Tate,  85  N.  C.  81  ;  Morse,  Banks,  § 
137;  Finn  v.  Brown,  142  U.  S.  56,  12  Sup.  Ct.  136; 
Society  v.  Underwood,  9  Bush,  609,  and  other  cases 
cited  in  Solomon  v.  Bates,  118  N.  C.  311,  24  S.  E.  478. 
If  the  directors  did  not  know  the  bank  was  insolvent, 
it  was  their  dut}^  to  have  known  it.  It  was  fraudulent 
for  them  to  put  forth  official  statements  that  the  bank 
was  solvent,  when  they  did  not  know  it  to  be  true,  and 
they  are  liable  to  those  who  were  deceived  thereby  into 
having-  dealing's  with  the  bank,  or  making-  deposits 
therein,  for  any  losses  sustained.  If  this  were  not  so, 
the  directors  of  a  bank  would  be  privileg-ed  to  be 
neg-ligent,  and  the  more  ignorant  they  could  manag-e  to 
be  about  its  condition  the  more  secure  they  would  be 
from  liability." 

Solomon  v.  Bates,  118  N.  C.  311,  24  S.  E.  478,  was 
precisely  like  the  preceding-  case.  In  the  last  case  it 
was  contended  that  the  petition  did  not  state  a  cause  of 

action  for  deceit,  because  it  did  not  charg-e 
J»n««3Same-  that  the  defendants  intended  to  deceive  the 
»nd Proof.  plaintiff.     The  court  in  the  course  of  the 

opinion  said  :  "It  is  sufficient  to  alleg-e  that, 
the  bank  being-  insolvent,  the  defendants  caused  false 
and  fraudulent  statements  of  the  condition  of  the  bank 
to  be  published,  representing;  it  to  be  solvent,  and  with 
capital  stock  unimpaired,  and  declaring-  dividends,  all 
this  with  a  view  to  conceal  its  insolvent  condition,  and 
induce  the  public  to  make  deposits,  whereby  the  plain- 
tiff was  deceived,  and  made  one  deposit,  which  he  is 
now  seeking-  to  recover.  Indeed,  the  directors  are 
liable  for  injury  caused  by  relying-  upon  a  statement 
issued  by  them  which  they  did  not  know  to  be  true  as 
well  as  when  they  knew  it  to  be  false.  Hubbard  v. 
Weare,    79  Iowa,    678,  44  N.  W.    915  ;  Huntington    v. 


■B  CAS]  OFFICERS  479 

Gerner  v.  Mosher 

AttriU,  118  N.  Y.  365,  23  N.  K.  541  ;  A/.,  42  Hun,  459  ; 
3  Thomp.  Corp.  §  4244." 

Notwithstanding  this  opinion  has  now  reached  an 
unusual  leng-th,  we  cannot  refrain  from  making-  the 
following- quotation  from  the  decision  in  Seale  v.  Baker, 
70  Tex.  289,  7  S.  W.  742:  "Directors  of  banking- 
corporations  occupy  one  of  the  most  important  and 
responsible  of  all  business  relations  to  the  g-eneral 
public.  By  accepting-  the  position,  and  holding-  them- 
selves out  to  the  public  as  such,  they  assume  that  they 
will  supervise  and  g-ive  direction  to  the  affairs  of  the 
corporation,  and  impliedly  contract  with  those  who  deal 
with  it  that  it^ affairs  shall  be  conducted  with  prudence 
and  good  faith.  They  have  important  duties  to  perform 
towards  its  creditors,  customers,  and  stockholders,  all 
of  whom  have  the  rig-ht  to  expect  that  these  duties  will 
be  performed  with  dilig-ence  and  fidelity,  and  that  the 
capital  of  the  corporation  will  thus  be  protected  ag-ainst 
misappropriation  and  diversion  from  the  leg-itimate 
I)urposes  of  the  corporation.  *  *  "  It  is  the  duty  of 
the  directors  to  know  the  condition  of  the  corporation 
whose  affairs  they  voluntarily  assume  to  control,  and 
they  are  presumed  to  know  that  which  is  their  duty  to 
know,  and  which  they  have  the  means  of  knowing-.  If 
the  representations  are  false,  but  relied  and  acted  on 
by  a  customer  to  his  damag-e,  to  hold  that  in  such  case 
the  directors  who  made  such  false  representations  are 
not  liable,  because  they  were  ig-norant  of  the  falsity  of 
such  representations,  would  be  to  award  a  premium  for 
neg-lig-ence  in  the  performance  of  important,  and  almost 
sacred,  duties,  voluntarily  assumed,  and  to  license 
fraud  and  deception  of  the  most  flag-rant  and  pernicious 
character.  It  is  a  familiar  principle  of  the  law  that  an 
action  fordamag-es  lies  ag-ainst  a  party  for  making-  false 
and  fraudulent  representations,  whereby  another  is 
induced  to  do  an  act  from  which  he  sustains  damage. 
If  the  representations  are  untrue,  it  is  immaterial  that 
they  may  have  been  made  without  fraudulent  intent, 
and  it  is  sufficient  that  they  were  made  to  the  g-eneral 


480  OFFICERS  [vol  I 

Note 

public,  if  the  appellant  was  induced  thereby  to  deposit 
money  in  the  bank." 

The  following"  authorities  to  some  extent  sustain  the 
doctrine  that  a  director  of  a  bank  is  liable  for  daraag-es 
resulting-    from  permitting-  a   statement  to  be  held   out 

to  the  public  that  the  institution  was  solvent. 
same"*^"""^"       eveu  thoug^h  the  director  was  unaware  that 

such  report  was  false:  Delano  v.  Case,  121 
111.  247,  12  N.  K.  676;  Kinkier  r.  Junica,  84  Tex.  119. 
19  S.  W.  359;  Bank  r.Wulfekuhler,  19  Kan.  60;  Salmon 
2'.  Richardson,  30  Conn.  360;  Morse  v.  Swits,  19  How. 
Prac.  275.  Upon  principle  and  authority,  the  conclusion 
is  irresistible  that  directors  cannot  escape  liability  for 
damag-es  resulting-  from  false  statements  made  by  them 
of  the  condition  of  the  bank,  even  thoug-h  they  were  at 
the  time  ig-norant thatsuch  statements  were  false.  The 
judg-ment  as  to  Thompson,  Stuart,  Phillips,  and  Ha- 
mer,  should  be  affirmed,  and  reversed  as  to  Mosher. 
Outcalt,  and  Yates. 

Harrison,  C.  J.,  Sullivan,  J.,  and  Ragan,  C, 
concur  in  the  foregoing"  opinion  of  NoRVAL,  J. 


NOTE. 

Liability  of  Directors  for  False  Reports. — If  directors  of  a  corpo- 
ration issue  false  and  fraudulent  reports  or  prospectuses,  any  person 
into  whose  hands  they  come  in  the  ordinary  course  of  business,  and 
who  is  misled  thereby',  has  his  action  against  the  directors  ;  Cincin- 
nati Cooperag-e  Co.  v.  O'Keefe,  20  N.  Y.  603  ;  Cross  v.  Sacket,  2  Bosw. 
(N.  Y.)  617,  6  Abb.  Pr.  (N.  Y.)  247  ;  Clarke  v.  Dickson,  6  C.  B.,  N. 
S.  453  ;  Bale  v.  Cleland,  4  F.  &  F.  117  ;  Jarrett  ?/.  Kennedy,  6  C.  B. 
319  ;  Gerhard  v.  Bates,  2  El.  &  Bl.  476 ;  Woutner  v.  Sharp,  4  C.  B.  404: 
Providence  Steam  Enerine  Co.  v.  Hubbard,  101  U.  S.  188  ;  Blake  v. 
Wheeler.  18  Hun  (N.  Y.)  496  ;  Pier  v.  Georgfe,  20  Hun  (N.  Y.)  210  ; 
Brockway  v.  Ireland,  61  How.  Pr.  (N.  Y.)  372  ;  Richards  v.  Crocker, 
19  Abb.,  N.  Cas.  (N.  Y.)  73  ;  Morgan  v.  Skiddy,  62  N.,  Y.  319,  326  ; 
Paddock  v.  Fletcher,  42  Vt.  389.  See  Smith  z'.  Chadwick,  L.  R.,  9 
App.  Cas.  187,  5  Am.  &  Eng.  Corp.  Cas.  23  ;  Petrie  v.  Guelph  Lumber 
Co.,  11  Supreme  Court  of  Canada  Rep.  451,  15  Am.  &  Eng.  Corp. 
Cas.  487  ;  Edington  v.  Fitzmaurice,  L.  R.,  29  Ch.  Div.  459,  10  Am.  & 
Eng.  Corp.  Cas.  78  ;  Carlev  v.  Hodges,  10  Hun  (N.  Y.)  187  ;  Glens 
Falls  Paper  Co.  v.  White,  58  How.  Pr.  (N.  Y.)  172.  See  Vernon  v.. 
Palmer,  6  How.  Pr.  (N.  Y.)  425 ;  Hewlett  Z'.  Epstein,  63  Cal.  184  ; 
Bolz  V.  Ridden  12  Daly  (N.  Y.)  329;  Duckworth  v.  Roach,  8  Daly  (N. 


B  CAS]  DEPOSITS  481 

State  ex  rel.  Anderson  v.  Thum 

Y.)  159  ;  Sears  v.  Waters,  44  Hun  (N.  Y.)  101  ;  Hunting-ton  v.  Attrill, 
42  Hun  (N.  Y.)  459  ;  Simons  v.  Vulcan  Oil,  etc.,  Co.,  61  Pa.  St.  202  ; 
Gaus  z'.  Switzer,  9  Mont.  408  ;  Wallace  z^.  Walsh  (N.  Y.),25N.  E. 
Rep.  1076  ;  Priest  v.  White,  89  Mo.. 609. 

But  to  charge  an  officer  for  signing  a  false  report,  knowing  it  to 
be  false,  some  fact  or  circumstance  must  be  shown  indicating-  that  it 
was  made  in  bad  faith  or  for  some  fraudulent  purpose,  and  not 
ignorantly  or  inadvertently,  and  this  is  a  question  of  fact  which  must 
be  passed  upon  before  the  liability  can  be  adjudged.  Pier  v.  Han- 
more,  86  N.  Y.  95. 

The  directors  of  a  tramway  company  issued  a  prospectus  in  which 
they  stated  that  they  were  authorized  to  use  steam  power,  and  that 
by  this  means  a  great  saving  in  working  would  be  effected.  At  the 
time  of  making  this  statement  they  had  not,  in  fact,  obtained 
authority  to  use  steam  power,  but  they  honestly  believed  that  thej' 
would  obtain  it  as  a  matter  of  course.  Held  (reversing- the  judg-ment 
of  the  court  below,  21  Am.  &  Eng-.  Corp.  Cas.  243),  that  they  were 
not  liable  in  an  action  of  deceit  brought  by  a  shareholder  who  had 
been  induced  to  applv  for  shares  by  the  statement  in  the  prospectus. 
Derry  v.  Peek,  14  App.  Cas.  (H.  L.)  337,  26  Am.  &  Eng.  Corp.  Cas. 
341. 

Where,  in  an  action  to  enforce  the  liability  imposed  by  statute  on 
the  trustees  of  a  manufacturing  corporation,  for  making  a  false 
report,  the  falsity  charged  consists  in  a  statement  that  the  capital 
stock  had  been  paid  up  in  full,  without  stating  that  a  portion  was 
paid  for  in  property,  held,  that  bad  faith  or  a  fraudulent  purpose 
must  be  shown,  as  the  penalty  follows  an  actual,  not  a  constructive, 
falsehood.     Bonnell  v.  Griswold,  89  N.  Y.  122. 

If  the  report  filed  be  untrue  and  constitute  a  false  representation,, 
it  renders  liable  only  the  officer  who  signed  it,  knowing  it  to  be  false. 
Pier  V.  Hanmore,  86  N.  Y.  95. 


State  cx  rel.  Anderson  ct  al. 
Thum. 

[Supreme  Court  of  Idaho,  Dec.  i6,  iSgS.) 

Banks — Insolvency — Public  Moneys  as  Trust  Funds.* — Public 
money  deposited  by  a  public  officer  in  a  bank  becomes  a  trust  fund, 
and  not  part  of  the  estate  of  the  bank  ;  and  in  case  of  the  insolvency 
of  the  bank  its  receiver  must  treat  such  fund  as  the  propertj^  of  the 
true  owner,  and  not  of  the  bank. 

Same — Same — Same. — The  creditors  of  an  insolvent  bank  are  not 
entitled  to  share ^/o  rata  in  public  money  deposited  in  such  bank. 

Pleading. — A  defect  in  a  complaint  may  be  cured  by  allegation  in 
the  answer. 

Sullivan,  J.,  dissenting. 

(Syllabus  by  the  Court.)  ' 

*See  notes  at  end  of  case. 
B  CAS— 31 


482  DEPOSITS  [vol  I 

State  e.v  rel.  Anderson  v.  Thum 

Appeal  from  Bing-liam  county  district  court. 

Petition  b}^  the  state,  on  the  relation  of  J.  H.  An- 
derson, state  auditor,  and  R.  E.  McFarland,  attorney 
g-eneral,  in  an  action  by  the  First  National  Bank  of  Po- 
catello  ag-ainst  C.  Bunting-  &  Co.  The  respondent, 
C.  E.  Thum,  was  appointed  receiver  of  C.  Bunting- 
&  Co.,  bankers,  an  insolv^ent  corporation,  on  the  15th 
■day  of  February,  1897,  by  order  of  the  district  court 
of  the  Fifth  judicial  district,  made  in  the  action 
broug"ht  by  the  First  National  Bank  of  Pocatello 
ag-ainst  said  C.  Bunting-  &  Co.,  bankers.  On  Feb- 
ruary 8,  1898,  the  state  ex  rel.  J.  H.  Anderson,  state 
auditor,  and  R.  K.  McFarland,  attorney  g-eneral, 
pursuant  to  order  of  said  district  court  gfranting-  leave 
so  to  do,  filed  its  petition  in  said  action,  in  which  it  is 
alleg-ed:  That  one  Georg-e  H.  Storer  was  duly  elected 
at  the  reg-ular  November  election  in  1896  state  treas- 
urer of  the  state  of  Idaho,  and  duly  qualified  as  such 
officer,  and  assumed  the  duties  of  said  office;  that  said 
Storer,  as  such  treasurer,  has  deposited  in  and  with  said 
C.  Bunting  &  Co.,  bankers,  larg-e  sums  of  money, 
belonging-  to  the  state,  and  which  came  to  his  hands 
as  such  treasurer;  that  said  moneys  were  received  b}^ 
said  C.  Bunting-  &  Co.,  bankers,  and  credited  on  its 
books  to  said  Georg-e  H.  Storer  as  treasurer,  with  full 
notice  and  knowledg-e  that  said  moneys  belong-ed  to 
and  were  the  property  of  the  state;  that  said  corpora- 
tion is  insolvent,  and  has  suspended  payment,  and  is 
unable  to  pay  its  indebtedness,  and  that  there  came  to 
the  hands  of  the  respondent,  C.  E.  Thum,  as  receiver 
of  said  banking-  corporation,  the  sum  of  $11,101.16, 
money  of  the  state;  that  the  state  has  demanded  pay- 
ment of  said  sum  from  said  receiver,  but  said  receiver 
fails  and  refuses  to  pay  same  to  the  state;  that  said 
receiver  has  disbursed  large  portions  of  the  assets  of 
said  banking-  corporation,  and  threatens  and  intends 
to  pay  out  and  distribute  the  remaining-  assets  of  said 
banking-  corporation  remaining-  in  his  hands,  and  said 
money  of  the  state,  to  the  creditors  of  said  corporation; 
that  said  receiver  claims  that  said  money  deposited  by 


B  CAS]  DEPOSITS  483 

state  ex  rel.  Auderson  v.  Thum 

said  Storer  as  treasurer  belongs  to,  and  is  a  part  of, 
the  estate  of  the  said  corporation,  and  will,  unless 
otherwise  directed  by  the  court,  pay  out  said  money 
to  the  creditors,  whereby  same  will  be  lost  to  the 
state.  To  this  petition  the  respondent  made  answer, 
in  which  he  denies  that  said  Storer  deposited  any  sum 
or  sums  of  money  belong-ingf  to  the  state;  that  there 
is  a  credit  on  the  books  of  said  C.  Bunting-  &  Co., 
bankers,  to  the  credit  of  said  Storer,  state  treasurer  ; 
that  said  credit  is  the  result  of  deposits  of  checks 
made  by  said  Storer;  that  when  said  Storer  came  into 
office  as  such  treasurer  there  were,  to  the  credit  of  C. 
Bunting-,  state  treasurer,  his  predecessor,  larg-e  sums 
of  money  deposited  in  said  bank  by  his  predecessor  ; 
that  said  Storer  received  from  his  predecessor  a  check 
for  such  sum  ;  and  that  said  Storer  continued  to  keep, 
as  state  treasurer,  with  said  bank,  an  account  based 
upon  credit  received  from  checks  from  his  predecessor, 
and  other  checks,  and  that  said  Storer  deposited  no 
money  or  cash  in  said  bank.  The  evidence  shows 
that  C.  Bunting-,  former  treasurer,  g-ave  to  his  succes- 
sor, Georg-e  H.  Storer,  state  treasurer,  January  6, 
1897,  a  check  for  $32,702.58,  and  which  check  was 
credited  by  said  bank  to  said  Storer,  state  treasurer  ; 
that  C.  Bunting-,  as  state  treasurer,  deposited  funds 
of  the  state  with  said  bank,  and  there  was  to  his 
credit,  as  such  treasurer,  in  said  bank,  on  January  6, 
1897,  more  than  $32,702.58.  Said  Storer,  state  treas- 
urer, deposited  other  checks  in  said  bank,  and  drew 
his  checks  thereon,  leaving-,  on  February  15,  1897,  a 
balance  to  his  credit  as  state  treasurer  of  something- 
over  811,101.16.  On  the  trial,  after  the  above  facts  had 
been  proven,  the  respondent  moved  for  a  nonsuit,  which 
the  trial  court  granted,  whereupon  judgment  was  en- 
tered dismissing-  the  appellant's  petition.  From  this 
judg-ment  the  state  appeals.  The  evidence  is  set  forth 
in  appellant's  bill  of  exceptions.     Reversed. 

R.  E.  McFarland,  Atty.  Gen.,  and  Havjlcy  &  Puck- 
ett,  for  the  State. 

Lyttleton  Price,  for  respondent. 


484  DEPOSITS  [vol  I 

State  e.v  re/.  Anderson  v.  Thum 

QuARLES,  J.  (after  stating-  the  facts).  The  conten- 
tion of  the  respondent  that  public  money  deposited  in  a 
bank  on  g-eneral  deposit,  by  a  public  officer,  in  viola- 
tion of  law,  becomes  the  estate  and  property  of  the  bank, 
the  owner  of  the  money  so  deposited,  contrary  to  its 
will,  becoming"  a  mere  creditor  of  the  bank,  raises  the 
principal  question  in  this  case.  The  district  court 
sustained  this  contention.  We  are  unable  to  do  so. 
The  position  of  the  state  in  this  case  is  unlike  that  of 
an  ordinary  depositor  in  a  bank.  A  party  who  deposits 
money  in  a  bank  on  g-eneral  deposit  voluntarily  becomes 
the  creditor  of  such  bank,  and,  impliedly  at  least,  ag^rees 
that  the  bank  may  comming^lesuch  money  with  its  own, 
and  use  it  until  called  for  by  such  depositor.  The  re- 
lation of  debtor  and  creditor  arises  by  mutual  consent. 
Not  so  in  the  case  at  bar.  The  state  never  consented 
to  become  the  creditor  of  C.  Bunting-  &  Co.,  bankers. 
It  never  deposited,  or  consented  that  the  funds  in  ques- 
tion should  or  mig-ht  be  deposited,  with  said  bank  on 
g-eneral  deposit.  On  the  other  hand,  the  state  absolutely 
prohibited  the  making-  of  such  deposit.  Sections  6975 
—  6977,  Rev.  St.,  are  as  follows: 

"Sec.  6975.  Each  officer  of  this  territory,  or  of  any 
county,  city,  town,  or  district  of  this  territory,  and 
every  other  person  charg-ed  with  the  receipt,  safe  keep- 
ing-, transfer,  or  disbursement  of  public  moneys,  who 
either: 

"1.  Without  authority  of  law,  appropriates  the  same 
or  any  portion  thereof  to  his  own  use,  or  to  the  use  of 
another;  or, 

"2.  Ivoans  the  same  of  any  portion  thereof;  or,  hav- 
ing- the  possession  or  control  of  any  public  money,  makes 
a  profit  out  of,  or  uses  the  same  for  any  purpose  not 
authorized  by  law;  or, 

"3.  Fails  to  keep  the  same  in  his  possession  until 
disbursed  or  paid  out  by  authority  of  law;  or, 

"4.  Deposits  the  same  or  any  portion  thereof  in  any 
bank,  or  with  an}^  banker  or  other  person,  otherwise 
than  on  special  deposit;  or, 

"5.   Chang-es  or  converts  any  portion  thereof  from 


B  CAS]  DEPOSITS  485 

State  ex  rel.  Anderson  v.  Thum 

coin  into  currency,  or  from  currency  into  coin  or  other 
currency,  without  authority  of  law;  or, 

"6.  Knowing-ly  keeps  any  false  account,  or  makes 
any  false  entry  or  erasure  in  any  account  of  or  relat- 
ing- to  the  same  ;  or, 

"7.  Fraudulently  alters,  falsifies,  conceals,  destroys, 
or  obliterates  any  such  account  ;  or, 

"8.  Willfully  refuses  or  omits  to  pay  over,  on  de- 
mand, any  public  moneys  in  his  hands,  upon  the  pre- 
sentation of  a  draft,  order,  or  warrant  drawn  upon  such 
moneys  by  competent  authority  ;  or, 

"9.  Willfully  omits  to  transfer  the  same,  when  such 
transfer  is  required  by  law  ;  or, 

"10.  Willfully  omits  or  refuses  to  pay  over  to  any 
officer  or  person  authorized  by  law  to  receive  the  same, 
any  money  received  by  him  under  any  duty  imposed 
by  law  so  to  pay  over  the  same  ;  is  punishable  by  im- 
prisonment in  the  territorial  prison  for  not  less  than 
one  nor  more  than  ten  years,  and  is  disqualified  from 
holding"  an}^  office  in  this  territory. 

"Sec.  6976.  Kvery  officer  charg^ed  with  the  receipt, 
safe  keeping-,  or  disbursement  of  public  moneys,  who 
neglects  or  fails  to  keep  and  pay  over  the  same  in  the 
manner  prescribed  by  law,  is  g-uilty  of  felony. 

"Sec.  6977.  The  phrase  'public  moneys'  as  used  in 
the  two  preceding  sections,  includes  all  bonds  and 
evidences  of  indebtedness,  and  all  money's  belonging" 
to  the  territor3%  or  any  city,  county,  town,  or  district 
therein,  and  all  moneys,  bonds,  and  evidences  of  in- 
debtedness received  or  held  by  territorial,  county, 
district,  city  or  town  officers  in  their  official  capacity." 

The  former  treasurer,  C.  Bunting-,  had  no  authority 
to  deposit  public   mone}'   in  the   bank   of   C.   Bunting- 
&  Co.,    bankers,  on  g-eneral   deposit.     The  bank  had, 
and  was  charged  with  express  notice  that  the 
state  treasurer  had,    no  authority  to   make  fe^,"y'rpu'i'i'S!.' 
such    g-eneral    deposit.       More    than    that;   Jl„";,7^' *' 'f'""'' 
the    bank,    nor   the   officers    of    said    bank, 
after  receiving  said  money,  could    mingle    it    with  the 
funds  of  the  bank,  or  loan  it,  or   make  profit  out  of  it, 


486  DEPOSITS  [vol  I 

state  ex  rcl.  Anderson  v.  Thum 

or  appropriate  it,  without  committing-  a  felony.  If  a 
bank  receives  public  money,  it  must  do  so  on  special 
deposit.  It  must  keep  such  money  separate  from  its 
own  funds.  It  must  not  use  it  or  loan  it.  If  any  of 
these  acts  are  committed,  the  persons  or  officers  who 
participate  are  g-uilty  of  a  felony.  Now,  it  must 
necessarily  follow  that,  the  state  treasurer,  having-  no 
authority  to  deposit  public  money  with  a  bank  on 
g-eneral  deposit,  but  he  being-  authorized  to  deposit 
such  money  with  a  bank  on  special  deposit,  the 
instant  that  C.  Bunting  &  Co.  received  public  money 
from  the  state  treasurer,  it  did  so  on  special  deposit, 
and  that  if  the  officers  or  any  officer  of  said  bank  there- 
after used  said  money,  or  commingled  it  with  the 
money  of  the  bank,  or  loaned  it,  such  officers  or  officer, 
by  such  act,  committed  a  felony.  The  bank  could  not 
appropriate  it.  Hence  it  did  not  become  the  estate  or 
property  of  the  bank.  If  the  bank  was  still  doing  busi- 
ness, it  could  not  claim  the  money  in  controversy,  or 
any  part  thereof,  as  its  own.  It  could  assert  no  claim 
adverse  to  the  state  to  such  money,  or  any  part  thereof. 
The  respondent,  as  receiver  of  said  bank,  can  assert 
no  claim  to  said  money  which  the  bank  could  not  it- 
self assert  if  it  was  still  doing  business.  The  credit- 
ors of  the  bank  have  no  interest  or  claim  upon  said 
money.  The  joint  wrong-  and  criminal  act  of  the  agent 
of  the  state  and  of  the  officers  of  the  bank  does  not 
redound  to  the  financial  interest  of  the  creditors  of  the 
bank.  The  bank  received  the  money  in  trust  for  the 
true  owner,  the  state.  It  must  be  regarded  as  a 
trustee.  Wolffe  v.  State,  79  Ala.  201  ;  Bank  z-. 
Hummel,  14  Colo.  259,  23  Pac.  986  ;  State  v.  Midland 
State  Bank  (Neb.)  71  N.  W.  1011  ;  Foster  v.  Rincker 
(Wyo.)  35  Pac.  470  ;  Kimmel  t'.  Dickson  (S.  D.)  58  N. 
W.  561  ;  Mechem,  Pub.  Off.  §  922  ;  Winslow  v.  Iron 
Co.  (Tenn.  Ch.  App.)  42  S.  W.  698;  Hubbard  v. 
Manufacturing  Co.  (Kan.  Sup.)  36  Pac.  1053  ;  Ryan  v. 
Phillips  (Kan.  App.)  44  Pac.  909  ;  City  of  Larned  v. 
Jordan  (Kan.  Sup.)  39  Pac.  1030,  We  could  cite  many 
other  authorities  to  the  same  effect.     In  Vale  v.  Towle, 


B  CAS]  DEPOSITS  487 

state  tw  re/.  Anderson  v.  Thum 

50Pac.  ,we  said,  at  pag-e  1008:  "Trustees  must,  in 
dealing-  with  trust  funds,  and  with  the  beneficiaries 
thereof  show  the  utmost  g-ood  faith  and  fair  dealing-. 
They  can  make  no  profit  out  of  the  trust  funds,  nor 
obtain  any  advantage  over  the  beneficiaries  of  such  funds; 
and  a  trustee  cannot  assert  an  adverse  claim  to  funds 
which  he  receives  in  his  fiduciary  capacity."  The  re- 
spondent, as  a  receiver,  is  in  the  same  position  as  the 
bank.  He  can  assert  no  adverse  claim  against  the 
state  to  the  money  in  question.  That  fund,  being-  a 
trust  fund,  is  no  part  of  the  insolvent  bank's  estate.  It 
must  be  paid  to  the  state  before  the  bank's  estate  is 
distributed.  Creditors  of  a  bank  need  not  expect, 
under  the  laws  of  this  state,  to  have  public  funds  in 
the  bank  distributed  among-  themselves  in 
case  of  the  failure  of  such  bank.  Could  saHIer'^*""'^ 
it  be  contended  that  if  A.  robbed  B.  of 
a  larg-e  sum  of  money,  and  then  went  into  insol- 
vency, that  that  money  should  be  distributed  among- 
A.'s  creditors?  Certainly  not.  We  cannot  give  our 
consent  to  the  doctrine  or  theory  that  if  two  persons, 
in  handling  a  particular  fund,  commit  a  felony  with 
reference  to  such  fuud,  their  criminal  act  devests  the 
owner  of  title,  or  creates  the  relation  of  debtor  and 
creditor  betvvcen  the  true  owner  of  such  fund  and  the 
parties  who  commit  the  criminal  act. 

The  respondent  insists  that  the  motion  for  nonsuit 
was  properly  granted  on  the  g-round  of  variance  be- 
tween the  alleg-ation  and  proof.  It  is  true  that  the 
evidence  shows  that  some  or  all  of  the  money 
in  question  was  deposited  with  C.  Bunting- 
&  Co.,  bankers,  by  the  former  treasurer,  and  not  by 
the  present  one.  In  this  respect  the  petition  is  defect- 
ive. But  such  defect  is  cured  by  the  allegations  of  the 
answer,  wherein  it  is  alleged  that  such  money  was 
placed  in  said  bank  by  C.  Bunting-,  former  treasurer, 
who  gave  his  check  therefore  to  Treasurer  Storer. 
The  judg-ment  appealed  from  is  reversed,  and  the  cause 
remanded  to  the  district  court,  with  instructions  to  en- 
ter judg-ment  in  favor  of  the  state  as  demanded  in  the 


488  DEPOSITS  [vol  I 

State  ex  rel.  Anderson  v.  Thum 

petition,  and  to  direct  the  respondent,  C.  E.  Thum,  as 
receiver,  to  pay  the  said  judg-ment  out  of  assets  of  the 
said  C.  Bunting-  &  Co.  in  his  hands  before  any  distribu- 
tion of  such  assets  amongrthe  creditors  of  said  banking- 
corporation.  Costs  of  appeal  to  be  paid  out  of  funds  in 
•the  hands  of  said  receiver. 

SuiviviVAN,  C.  J.,  and  Huston,  J.,  concur. 

On  Rehearing-. 
(Jan.   11,  1899.) 

Huston,  C.  J.  A  rehearing-  is  asked  in  this  case  prin- 
cipally upon  the  ground  that  the  respondent  had  no 
opportunit}^  of  presenting-  any  evidence  in  the  court 
below.  It  seems  to  us,  this  claim  comes  a  little  late. 
The  record  shows  that  when  the  case  was  called  for 
trial  the  respondent  was  placed  on  the  stand  by  plain- 
tiff, and  testified  as  follows  : 

"I  am  the  receiver  in  the  cause  of  First  National 
Bank  of  Pocatello  i\  C.  Bunting-  &  Co.,  Bankers,  and 
have  been  since  February  15,  1897,  and  prior  to  that 
time  had  been,  an  employee  in  the  bank  of  C.  Bunting- 
&  Co.  Had  charg-e  of  the  books  of  that  bank.  C. 
Bunting-  was  state  treasurer  of  Idaho  prior  to  the  be- 
g-inning-  of  the  term  of  office  of  Geo.  H.  Storer,  the 
present  treasurer.  In  January,  1897,  Bunting-,  as  treas- 
urer, turned  over  to  Storer,  as  his  successor,  the  office 
of  state  treasurer.  Part  of  the  state  money  was  on  de- 
posit in  the  Capital  State  Bank  of  Boise  City,  and  part 
in  the  Bank  of  C.  Bunting-  &  Co.,  Blackfoot.  The 
•books  of  C.  Bunting-  &  Co.,  bankers,  show  that  there 
was  deposited  to  the  credit  of  Geo.  H.  Storer,  as  state 
treasurer,  on  January  6,  1897,  the  sum  of  $32,702.58, 
and  that  afterwards  there  was  deposited  by  said  treas- 
urer the  sum  of  $8,477.27,  and  that  there  was  paid  out 
upon  the  checks  of  the  treasurer  and  for  state  warrants 
all  of  said  amounts  except  the  sum  of  $1 2,683.93,  shown 
by  the  books  to  be  due,  but  which  has  been  reduced  by 
reason  of  certain  interest  amounts  paid  out,  and  not  de- 
termined at  the  time  the  bank,  was  closed,  but  which  I 


B  CAS] 


DEPOSITS 

State  ex  rel.  Anderson  v.  Thum 


489 


have,  as  receiver,  since  ascertained  to  be  the  sum  of 
511,022.38. 

"The  account  of  C.  Bunting*,  as  state  treasurer  for 
1897,  as  shown  by  the  book  of  orio-inal  entries,  in  which 
said  account  was  kept,  is  as  follows: 


Page  246. 
1897. 


C.  Bunting-,  State  Treasurer. 
1897. 


Jan.  4 

5 
6 
7 
8 


163,  162,  164 

7 

9 

12 

13 

15 

991   85 
504   16 
32,702   58 
350 
150 

Jan.  2 
Feb.    15 

Balance 

28   21 

28   21 

Bal.  L. 


Balance 


299 


34,726  80 
28  21 


28  21 


28  21 


'The  account  of  Georg-e  H.   Storer,  as  state  treas- 
urer, as  shown  bv  said  book,  is  as  follows: 


1897. 


George  H.  Storer,  State  Treasurer. 
1897. 


Jan.  27 

28 

State 

Warr'ts 
Balance 

35 
36 

52 
54 

351  15 
114  66 

Jan.  6 
29 

Feb.  1 

Feb.  15 

Balance 

11 
37 

40 

32,702  58 
8,477  27 

Feb.  11 
13 

9,173  27 

19,552  84 
12,683  93 

40,714  04 
696 

41,410  04 

41,410  04 

12,683  93 

"(To  the  introduction  of  said  accounts  as  evidence 
the  defense  objected  on  theg'rounds  that  it  was  incom- 
petent, immaterial,  and  irrelevant.  Objection  overruled, 
and  exception  taken.) 

"The  book  from  which  these  accounts  are  taken  is 
the  general  ledg-er  of  the  bank,  which  is  a  book  of  orig-i- 


490  DEPOSITS  [voiy  I 

State  e.i-  rel.  Anderson  v.  Thum 

nal  entries,  and  the  only  book  of  the  bank  which  shows 
accounts.  The  entry  on  the  Storer  account  of  $32,702.50^ 
represents  that  part  of  the  fund  which  was  on  deposit 
in  the  bank  at  Blackfoot,  turned  over  by  C.  Bunting*  to 
Storer  at  the  time  Bunting*  turned  over  the  office  of  state 
treasurer.  This  sum  was  turned  over  by  means  of  a 
check  drawn  by  C.  Buntings,  state  treasurer,  on  C. 
Bunting-  &  Co.,  bankers,  and  payable  to  George  H. 
Storer,  treasurer.  The  other  entries  in  the  Storer  ac- 
count represent  checks  turned  into  the  bank  by  Storer. 
It  was  the  custom  in  the  bank  to  credit  the  checks  re- 
ceived, when  they  were  considered  good,  at  the  time  of 
their  receipt.  There  is  nothing*  in  the  bank  to  show  an}" 
of  these  checks  w^ere  dishonered,  and,  as  a  matter  of 
fact,  they  were  all  paid." 

The  testimony  of  the  respondent  was  the  only  oral 
proof  oifered  in  the  case,  and,  togfether  with  the  exhibits 
produced  by  him,  constitute  all  the  evidence  in  there- 
cord.  After  the  evidence  was  closed,  the  respondent 
moved  for  a  nonsuit,  which  was  g*ranted. 

How  can  the  respondent  claim  that  he  had  no  oppor- 
tunity to  present  any  evidence?  While  respondent  was 
upon  the  stand  he  was  subjected  to  a  very  rigfid  cross- 
examination  by  his  own  attorney,  during*  which,  in 
answer  to  certain  interrog*atories  propounded  to  him, 
he  staled,  in  substance:  That  on  the  6th  day  of  Janu- 
ary, 1897,  the  amount  of  money  in  the  bank  of  C.  Bunt- 
ing* &  Co.  was  about  S11,000;  that  up  to  a  short  time 
before  failure,  the  daily  balance  averag*ed  about  $10,000. 
The  contention  of  respondent  is  that  there  never  was 
any  money  deposited  by  Storer;  that  he  only  deposited 
checks.  These  checks  were  under  the  provisions  of 
section  6977,  Rev.  St.  Idaho,  "public  moneys,"  and  as 
such  were  deposited  by  the  treasurer,  Storer,  in  the 
bank  of  C.  Bunting  &  Co.,  and  were  so  received  by 
said  bank,  and  were  made  available  by  the  treasurer  in 
paying  the  indebtedness  of  the  state.  $41,410.04  was 
so  deposited  by  the  treasurer,  and  of  this  amount,  ac- 
cording* to  thetestimony  of  respondent, all  but$ll,022.38 
was  checked  out  by  the  treasurer,  and  yet  counsel  con- 


B  CAS]  DEPOSITS  491 

State  ex  rel.  Anderson  v.  Thum 

tends  that  no  money  was  ever  deposited.  This  con- 
tention seems  to  us  a  non  scqiiitur.  The  law  made 
the  checks  of  Bunting-  or  any  one  else  in  the  hands  of 
the  treasurer  "public  moneys."  As  such  they  were 
deposited  by  the  treasurer,  and  were  checked  against 
by  him  in  paying  liabilities  of  the  state,  and  all  such 
checks  were  paid.  Respondent  appears  to  lay  consid- 
erable stress  upon  the  fact  that  the  averag-e  daily  bal- 
ances in  the  bank  from  January  6th  to  the  time  of  the 
failure  were  only  about  810,000.  While  not  as  con- 
versant with  the  details  of  the  banking  business  as  the 
learned  judge  of  the  district  court,  or  the  learned  coun- 
sel, it  seems  to  us  that  the  dail}'  balances,  as  shown  by 
the  books  of  the  bank,  could  hardly  be  accepted  as 
conclusive  of  the  amount  of  daily  deposits.  A  bank 
may  receive  8100,000  to-day  on  deposit  and  through 
collections,  and  may  on  the  same  day,  by  loans  and 
otherwise,  disburse  8105,000.  Its  daily  balance  in  such 
case  would  be  the  same  as  the  day  before  less  85,000; 
but  would  that  be  indicative,  even,  much  less  conclu- 
sive, of  the  amount  of  deposits  received  or  of  business 
done  on  that  day?  We  have  examined  with  much  care 
the  case  of  Beard  v.  Independent  Dist.,  31  C.  C.  A. 
562,  88  Fed.  375.  That  case  arose  under  statutes  en- 
tirely unlike  those  of  this  state.  In  that  case  the  court 
says  (page  377):  "The  question  for  decision  is,  what 
rule  should  be  followed  bv  a  receiver  of  a  national  bank 
in  distributing  the  assets  of  the  bank,  which  have  come 
into  his  hands  under  the  provisions  of  the  laws  of  the 
United  States,  in  cases  wherein  it  appears  that  trust 
funds  have  been  received  by  the  bank  in  the  course  of 
its  business?"  Such  is  not  the  question  in  this  case. 
The  bank  of  C.  Bunting  &  Co.  was  not  a  national  bank. 
The  assets  of  that  bank  did  not  come  into  the  hands  of 
the  respondent  as  receiver  under  anv  law^  of  the  United 
States.  The  court  in  the  case  in  31  C.  C.  A.  562,  88- 
Fed.  375,  seems  to  hold  that  the  real  point  at  issue  in 
that  case  was,  were  the  funds  of  the  bank  augmented 
by  the   addition   thereto  of  the  trust  funds?  We  do  not 


492  DEPOSITS  [VOIv  I 

state  ex  rel.  Anderson  v.  Thum 

see  how  such  a  question  could  be  raised  under  the  proofs 
in  this  case. 

We  are  unable  to  see  that  any  different  result  could 
be  reached  in  this  case  from  further  arg-ument.  In  fact, 
the  question  in  this  case  does  not  seem  to  be  so  much 
one  of  fact  as  the  application  of  the  law  to  facts  about 
which  there  is  no  contention.  Counsel  for  respondent 
contends  that  the  deposit  of  the  checks  by  Storer  was 
not  a  deposit  of  money  such  as  would  create  a  trust 
fund  on  the  part  of  the  state.  With  this  contention  we 
cannot  ag-ree  without  abrog-ating-  the  provisions  of  our 
statutes.  The  plaintiff  would,  we  think,  have  been 
entitled,  on  motion,  to  a  judg-ment  on  the  pleadings  in 
this  case.  The  depositing-  of  the  checks  by  Storer  is 
admitted  by  the  answer,  and,  said  checks  being-  "pub- 
lic moneys"  in  the  hands  of  said  Storer,  and,  being  by 
him  deposited  as  "public  moneys"  in  the  bank  of  C. 
Bunting-  &  Co.,  we  are  unable  to  see  what  there  is  to 
be  urged  against  a  judgment  for  plaintiff  upon  the 
pleadings.     Rehearing  denied. 

QuARLES,  J.,  concurs. 

SuEEiVAN,  J.  (dissenting).  Respondent  contends, 
in  his  petition  for  a  rehearing,  that  the  only  question 
of  law  presented  on  appeal  was:  Did  a  trust  relation 
arise  from  a  deposit  of  money  in  the  Bunting  bank  b}'" 
Storer,  as  state  treasurer,  and  which  had  come  to  the 
receiver's  hands,  which  would  allow  the  state  to  pursue 
and  take  it?  It  is  contended:  That  it  never  was  claimed 
that  a  deposit  by  Storer's  predecessor  in  office,  Bunt- 
ing, could  be  shown,  or  was  shown,  as  a  basis  for  re- 
covery in  this  action,  or  that  there  was  any  admission 
in  respondent's  answer  that  would  relieve  the  appel- 
lant from  proving  his  allegations.  That  it  appeared 
from  the  opinion  of  the  court  that  an  actual  deposit  of 
money  belonging  to  the  state  v^-as  a  necessity  to  the 
state's  recovery.  That  as  there  was  no  proof  of  Storer's 
having  made  any  deposit,  the  court  then  considered 
whether  recovery  could  be  had  upon  the  evidence  or 
admissions    that    Storer's    predecessor    had  deposited 


B  CAS]  DEPOSITS  493 

state  ex  rel.  Anderson  v.  Thum 

money  there.  And  in  support  of  this  contention  quotes 
from  the  opinion  the  following':  "The  respondent  in- 
sists that  the  motion  for  nonsuit  was  properly  g^ranted 
on  the  ground  of  variance  between  the  alleg^ation  and 
proof.  It  is  true  that  the  evidence  shows  that  some, 
or  all,  of  the  money  in  question  was  deposited  with  C. 
Bunting-  &  Co.,  bankers,  by  the  former  treasurer,  and 
not  by  the  present  one.  In  this  respect  the  petition  is 
defective.  But  such  defect  is  cured  by  the  allegfatious 
of  the  answer,  wherein  it  is  alleg^ed  that  such  money 
was  placed  in  said  bank  by  C.  Bunting-,  former  treas- 
urer,who  g-ave  the  check  therefor  to  Treasurer  Storer." 
And  contends  that  the  court  misapprehended  petitioner's 
position  in  this,  to  wit:  that  it  is  not  a  variance  between 
alleg-ation  and  proof,  but  that  it  is  a  clear  failure  of 
proof.  Also  contends  that  the  court  mistakes  the  fact 
when  it  says:  "It  is  true  that  the  evidence  shows  that 
some,  or  all,  of  the  money  in  question  was  deposited 
*  *  *  by  the  former  treasurer,  and  not  by  the  pres- 
ent one."  And  contends  that  all  the  testimony  g-oes  to 
what  appears  from  the  books  only,  and,  on  this  subject, 
nothing-  of  the  witness'  own  knowledg-e.  It  is  also 
contended  that  the  evidence  failed  utterly  in  establish- 
ing- the  alleg-ation  that  Storer  made  any  deposit  what- 
ever as  alleged.  It  is  also  contended  that  it  was  not 
shown  where  the  money  belong-ing-  to  the  state  was 
deposited,  and  quotes  the  following-  from  the  testimon}^ 
of  the  state's  witness,  the  receiver,  to  wit:  "Mr.  Bunt- 
ing- g-ave  Storer  two  checks,  one  of  which  was  drawn 
on  the  Capital  State  Bank  at  Boise  and  the  other  on  C. 
Bunting-  &  Co.  's  Bank  at  Blackf oot.  These  two  checks 
represented  the  funds  in  the  state  treasury  at  that  time. 
I  know  this,  because  I  examined  the  state  treasurer's 
books.  I  don't  know  where  the  money  was  that  be- 
long-ed  to  the  various  funds.  Storer  g-ave  Bunting-  a 
receipt  for  the  checks."  It  is  also  urged  that  the  court 
evidently  misapprehends  the  averments  in  the  answer 
wherein  the  opinion  states  that  the  "petition  is  defect- 
ive," but  that  such  defect  is  cured  by  the  answer,  and 
contends  that  the  averments  in  the  answer  do  not  admit 


494  DEPOSITS  [vol  I 

State  ex  I'cl.  Anderson  z'.  Thum 

that  Bunting-,  as  state  treasurer,  made  a  deposit  of  state 
funds  in  said  bank;  and  quotes  the  following-  from  the 
answer:  "Said  receiver  denies  that  the  said  pretended 
or  any  moneys  mentioned  in  the  said  petition  ever  were 
or  are  now  credited  on  the  books  of  C.  Bunting-  &  Co., 
bankers,  defendants, or  that  the  same  were  ever  received 
by  said  C.  Bunting-  &  Co.,  bankers,  with  full  or  any 
notice  or  knowledge  that  the  said  moneys  belonged  to 
the  petitioner,  the  state  of  Idaho,  or  that  any  moneys 
were  ever  deposited  by  him  at  all."  "Further  answer- 
ing the  said  petition,  said  receiver  denies  that  the  said 
or  any  moneys  whatever  belong-ing-  to  the  state  of  Idaho 
ever  came  to  his  hands,  as  receiver  or  otherwise." 
"There  was  a  credit  on  the  books  of  the  said  defendant 
bank  to  C.  Bunting-,  as  state  treasurer,  of  a  consider- 
able sum  of  money,"  etc.,  and,  in  folio  26,  "His  said 
predecessor  gave  him  a  check  on  the  defendant  bank 
for  the  full  amount  of  money  in  his  (not  the  bank's) 
hands  belong-ing  to  the  state,"  etc.  And  contends  that 
said  averments  are  all  that  is  contained  in  said  answer 
touching-  said  subject,  and  that  said  alleg-ations  do  not 
admit  a  deposit  by  Bunting-,  either  directly  or  indi- 
rectly, by  intendment  or  by  fair  construction;  that  it 
denies  that  any  deposit  of  the  state  money  was  ever 
made  in  said  bank  b}^  anybody,  at  any  time.  The  point 
made  by  the  foreg-oing-  is  that  the  proof  failed  as  to  the 
particular  thing  alleg-ed  in  the  petition,  to  wit,  that  the 
deposit  was  made  by  Storer,  state  treasurer,  and  that 
the  defect  in  proof  was  not  made  g-ood  by  admissions 
in  the  answer.  It  is  also  contended  that  the  court  erred 
in  remanding-  the  case  with  instructions  to  enter  judg- 
ment for  the  state.  The  appeal  was  from  a  judg-ment 
of  nonsuit,  g-ranted  on  motion  of  the  respondent.  Said 
motion  was  made  at  the  close  of  plaintiff's  evidence, 
and  before  the  defendant  had  put  in  any  evidence  what- 
ever. It  is  contended  that  by  remanding-  the  case  with 
instructions  to  enter  judgment  for  the  state  the  defend- 
ant is  deprived  of  the  right  to  make  a  defense  on  the 
merits  and  facts  of  the  case;  that  such  proceeding  is 
not  due  process  of  law,  and  denies  the  defendant  a  sub- 


B  CAS]  DEPOSITS  495 

State  ex  i-el.  Anderson  v.  Thum 

stautial  rigfht, — that  of  making-  his  defense  on  the  merits. 

In  Bag"ley  v.  Katon,  10  Cal.  149,  it  is  held  as  follows: 
''It  is  not  our  practice  to  direct  the  entry  of  a  judgment 
in  the  court  below  in  actions  at  law,  except  when  the 
facts  have  been  found  by  the  judge  who  tried  the  cause, 
or  by  the  special  verdict  of  a  jury,  or  when,  from  the 
character  of  the  action  or  pleadings,  one  of  the  parties 
is  entitled  to  judgment  without  proof."  In  Cooper  v. 
Shepardson,  51  Cal.  300,  the  court  reversed  the  case, 
but  declined  to  order  final  judgment;  saying,  "It  ma}' 
be  that  upon  a  new  trial  a  different  case  will  be  made 
out."  Hayne,  in  his  work  on  New  Trial  and  Appeal 
(section  296),  holds  that,  when  all  of  the  material  facts 
are  established  in  the  court  below,  the  supreme  court, 
in  reversing  a  judgment,  may,  in  its  discretion,  direct 
final  judgment.  In  the  case  at  bar  the  material  facts 
were  not  found  by  the  court  below.  Judgment  of  non- 
suit was  entered  against  the  plaintiff  at  the  close  of 
Its  evidence.  The  court  found  no  facts  upon  which  a 
judgment  could  be  based  in  favor  of  the  state;  and  in 
that  case  this  court  must  find  such  facts  in  order  to  di- 
rect a  judgment  against  the  defendant,  who  is  respond- 
ent here.  To  do  so  would  be  to  exercise  original,  rather 
than  appellate,  jurisdiction.  Of  course,  a  different 
question  would  be  presented  if,  under  the  pleadings, 
the  appellant  was  entitled  to  judgment  without  proof; 
and  in  that  case  a  trial  court,  on  proper  application, 
would  allow  the  pleadings  to  be  amended. 

The  opinion  of  the  court  is  based  on  the  ground  that 
Bunting,  Storer's  predecessor,  deposited  state  monev; 
and  that  conclusion  is  reached  by  holding  that  the  an- 
swer cures  a  defective  allegation  in  the  complaint.  On 
a  careful  re-examination  of  the  pleadings,  I  am  of  the 
opinion  that  the  answer  does  not  admit  that  the  prede- 
cessor of  Treasurer  Storer  deposited  said  mone}'  in 
said  bank.  The  admission  that  said  bank  books  show 
credit  to  said  predecessor  is  not  such  an  admission  as 
would  warrant  the  court  in  finding  that  said  Bunting 
did  make  a  deposit  of  state  mone\'  when  such  deposit 
is  specifically  denied  by  the  answer.     The  averment  is 


4%  DEPOSITS  [vol  I 

State  ex  rel.  Anderson  v.  Thum 

that  there  was  a  credit  on  the  books  of  the  defendant 
bank  to  C.  Bunting-,  as  state  treasurer,  of  a  consider- 
able sum  of  money.  That  admission  is  not  sufficient 
to  hold  that  Bunting-  deposited  therein  over  S32,000  of 
the  state's  money,  or  of  any  amount  whatever,  without 
proof. 

While  it  is  true  the  evidence  introduced  by  the  state 
tends  to  show  that  Bunting-,  as  state  treasurer,  had  a 
credit  in  said  bank,  and  of  the  amount  thereof,  the  de- 
fendant had  a  rig-ht,  under  his  answer,  to  show  that 
said  credit  was  a  fictitious  one,  or  that  no  public 
money  had,  as  a  matter  of  fact,  been  deposited  in  said 
bank.  This  is  not  an  action  between  the  Bunting- 
Banking  Company  and  the  state,  but  ag-ainst  the  re- 
ceiver, who  represents  all  of  the  creditors  of  said 
bank;  and  the  creditors,  through  the  receiver,  have  the 
rig-ht  to  make  any  leg-al  defense  that  will  defeat  the 
state's  claim. 

This  court  has  in  this  case  only  appellate  jurisdiction, 
and,  as  the  court  below  has  found  no  facts  on  which  a 
judgment  can  be  based,  this  court  cannot  usurp  the 
jurisdiction  of  the  nisi  -prius  court,  and  in  the  first 
instance  find  facts  on  which  to  base  a  judgment.  I  do 
not  think  the  pleadings  are  such  as  would  warrant  a 
judgment  on  them  without  proof.  The  cause  should 
have  been  remanded,  and  the  receiver  given  an  oppor- 
tunity to  present  his  defense. 

While  it  is  true  the  receiver,  as  a  witness  for  the 
plaintiff,  testified  that  said  ledger  w^as  a  book  of  origi- 
nal entry  of  said  bank,  it  is  not  shown  who  made  said 
entries,  or  that  they  are  correct. 

The  opinion  of  the  majority  of  the  court  on  the  peti- 
tion for  a  rehearing  presents  an  additional  reason  for 
an  opinion  in  favor  of  the  state  that  was  not  suggested 
in  oral  argument  or  by  brief  on  the  hearing  of  the  case, 
and  that  is  that  the  checks  deposited  by  Storer  were 
"public  money,"  under  the  provisions  of  section  6977, 
Rev.  St.  That  point  was  not  mooted  on  the  hearing 
of  this  case  and  it  is  only  right  and  fair  to  the  respond- 
ent that  he  should  be  heard  upon  points  on  which  the 


B  CAS]  DEPOSITS  497 

Notes 

decision  rests.  If  it  be  said  the  check  was  public 
money,  and  must  be  considered  such  in  this  case,  it 
may  be  that  the  receiver  will  be  able  to  return  said 
check  —  "public  money" — to  the  plaintiff,  and  thus  re- 
turn to  the  state  the  identical  "public  money"  deposited 
by  Treasurer  Storer;  and,  if  the  state  g"ets  the  identi- 
cal "public  money"  which  it  deposited  by  its  treasurer, 
it  ought  not    to  complain. 

The  circumstances  under  which  the  case  was  pre- 
sented to  this  court  were  most  unfavorable,  and  the 
importance  and  far-reaching-  effect  of  the  decision  de- 
mand that  the  parties  should  be  fully  and  fairly  heard, 
and  I  think  a  rehearing*  should  be  granted. 


NOTES. 

Deposits  by  Officials  and  Trustees— Presumption  of  Ownerships. — 

The  depositor  is  presumed  to  be  the  real  owner  of  the  funds  standing- 
in  his  name.  Eg"bert  v.  Payne,  99  Pa.  St.  239  ;  Lock  Haven  First 
Nat.  Bank  v.  Mason,  95  Pa.  St.  113,  40  Am.  Rep.  632. 

Same — Same — How  Presumption  is  Overthrown. — The  presump- 
tion is  overcome  b3'  proof  of  circumstances  attending-  the  deposit 
which  would  constitute  notice  of  a  diiferent  ownership,  but  the  bur- 
den of  proof  is  on  the  claimant  of  the  fund  as  against  the  depositor. 
Egbert  v.  Payne,  99  Pa.  St.  239. 

Following  Trust  Deposits. — Trust  funds  remain  charged  with  their 
fiduciary  character,  although  deposited  to  the  trustee's  individual 
credit  and  mingled  with  his  personal  moneys,  and  the  beneficiary 
can  follow  thein  and  assert  his  claim  on  the  balance  in  the  banker's 
hands.  Where  the  trustee  has  drawn  checks  generally  against  the 
funds  so  confused,  he  will  be  taken  to  have  drawn  out  his  own  in 
preference  to  the  trust  monev.  Importers',  etc.,  Nat.  Bank  v.  Peters, 
123  N.  Y.  278  ;  Van  Alen  v.  American  Nat.  Bank,  52  N.  Y.  1 ;  Weth- 
rell  V.  O'Brien,  140  111.  146,  33  Aiu.  St.  Rep.  221. 

B  CAS — 32 


498  DEPOSITS  [vol  I 

Hodgin  V.  People's  Nat.  Bank 


HODGIN 

V. 

People's  Nat.  Bank. 

{Supi'emc  Court  of  North  Carolitia,  April  2^^  i8gg.) 

Right  to  Apply  Deposits  to  Debts.* — A  bank  has  the  right  to 
apply  the  debt  due  by  it  for  deposits  to  anj'  indebtedness  by  the 
depositor,  in  the  same  right,  to  the  bank,  provided  such  indebted- 
ness to  the  bank  has  matured. 

Same — Insolvency  of  Depositor — Set-Off.f — Even  if  such  an  in- 
debtedness to  the  bank  has  not  matured,  if  the  depositor  becomes 
insolvent,  the  bank,  by  virtue  of  the  right  of  equitable  set-off,  maj' 
apply  the  deposits  with  it  of  such  debtor  to  his  indebtedness. 

Same — Deposits  by  Surviving  Partner — Presumptions. —  Where 
there  is  no  evidence  to  the  contrary,  the  presumption  is  that  nione^' 
deposited  by  a  surviving  partner,  and  kept  under  the  old  heading 
on  the  bank's  books,  was  deposited  in  behalf  of  the  partnership,  as 
a  continuation  of  the  old  line  of  deposits;  and  that,  on  the  insolvency 
of  the  partnership,  the  bank  is  entitled  to  apply  such  deposit  to 
antecedent  debts  owing  to  it  by  the  partnership. 

Same — Partner's  Individual  Debts. — But,  even  though  a  partner- 
ship is  insolvent,  a  bank  has  no  right  to  apply  deposits  in  behalf  of 
the  firm,  whether  made  during  its  existence  or  b}'  the  surviving 
partner,  to  the  individixal  indebtedness  of  a  member  of  the  partner- 
ship, and  it  is  immaterial,  in  this  connection,  that  such  indebted- 
ness is  a  note  of  one  partner  indorsed  by  the  other. 

Appeal  by  plaintiff  from  Fors3^th  county  superior 
court.     Reversed. 

Holton  &  Alexander,  Shepherd  &  Biisbee,  E.  E. 
Gray,  and  Charles  Price,  for  appellant. 

Glenn  &  Manly,  Watson,  Bnxton  &  Watson,  Jones 
&  Patterson,  and  A.  H.  Eller,  for  appellee. 

Clark,  J.  A  bank  has  the  rig-ht  to  apply  the  debt 
due  by    it   for    deposits  to  any  indebtedness  by  the  de- 

*See  Columbia  Nat.  Bank  v.   German  Nat.   Bank  (Neb.),  ante,  p. 
43  and  note,  p.  47. 
f  See  note,  ante,  p.  48. 


B  CAS]  DEPOSITS  499 

Hodgin  V.  People's  Nat.  Bank 

positor,  in   the  same  rig-ht,  to  the  bank,  provided  such 

indebtedness    to    the    bank    has    matured. 

Bank  V.    Hill,  76   Ind.  223;  Kuapp  v.  Cow-  K*,«offi'"" 

ell,    77  Iowa,  528,  42  N.  W.  434;  Coates  v. 

Preston,   105   111.  470;  Bank  v.    Bowen,  21  Kan.  354; 

Clark  V.   Bank,   160  Mass.  26,  35  N.  E.  108;  Bank  v. 

Armstrong-,    15  N.    C.  519;  Muench  v.  Bank,  11  Mo. 

App.  144;  Morse,    Banks,   §  324;  Bank  v.  Hughes,  17 

Wend.  94;  Eyrich  v.  Bank,  67  Miss.  60,  6  South.  615. 

Kven   if    the    indebtedness   to  the  bank  has 

not   matured,    if   the  depositor  becomes  in-  same-insoivency 

solvent,    the  bank,  by  virtue  of  the  rig-ht  of  off. 

equitable  set-off,    may    apply    the    deposits 

with     it     of     such      debtor      to     his      indebtedness. 

Dammon  z'.  Bank,  50  Mass.  194;  Kentuckv  Flour  Co.'s 

Assig-nee  v.  Merchants'  Nat.   Bank,  90  Ky.  225,  13  S. 

W.  910;  Nashville  Trust  Co.  v.  Fourth  Nat.  Bank,  91 

Tenn.  336,  18  S.  W.  822;  Georgia  Seed  Co.    v.    Tal- 

madg-e  &l  Co.,  96  Ga.  254,  22  S.  F.  1001;  Wat.  Set-Off, 

432.     The    money    deposited    b}''  Hodgin  as  surviving- 

partner   was  kept  under  the  same  heading-  in 

the  bank's  books,  "Hodg-in  Bros.  &  Lunn,"   same -Deposits  by 

,      r  i  1        1       J.1       r  T  1  1        Surviviiifr  Partner 

as  before  the  death  or  Ivunn,  and  was  merely  -Presumptions. 
a  continuation  of  the  old  line  of  deposits. 
This  would  have  been  equally  true  if  the  deposits, 
after  the  death  of  Lunn,  had  been  made  in  the  name  of 
"Hodgin,  surviving  partner."  In  either  event,  the  de- 
posits were  in  behalf  of  the  firm,  and  were  in  the  same 
rig-ht  as  the  note  held  by  the  bank  against  said  firm; 
and  on  the  insolvenc}^  of  the  firm  the  bank  had  the 
rig-ht  to  apply  the  deposit  made  by  the  surviving  part- 
ner in  behalf  of  the  firm  to  the  indebtedness  of  the  firm, 
whether  matured  or  not.  If  the  surviving-  partner  had 
made  the  deposit  a  special  deposit  or,  if  there  had  been 
an  agreement  with  the  bank  that  these  deposits  should 
not  be  applied  to  the  indebtedness  of  the  firm  to  the 
bank,  then  the  bank's  rig"ht  of  set-ofif  would  have  been 
tolled.  Morse,  Banks,  §  325.  But  there  was  no  evi- 
dence to  that  effect.  It  is  true  that  deposits  made  by  an 
executor  or  administrator  in  a  bank  cannot  be  applied  to 


500  DEPOSITS  [vol  I 

Hodgin  v.  People's  Nat.  Bank 

the  indebtedness  to  the  bank  of  the  deceased.  Jordan 
f.  Bank,  74  N.  Y.  467;  Appeal  of  Farmers'  &  Mechan- 
ics' Bank,  48  Pa.  St.  57.  But  that  is  because  the  per- 
sonal representative  holds  the  funds  of  the  estate  for 
the  payment  of  the  debts  in  the  order  prescribed  by- 
statute,  and  then  fyro  rata  in  each  class,  which  would 
be  disturbed  if  the  bank  could  apply  the  funds  deposited 
by  the  executor  or  administrator  to  the  indebtedness 
due  to  it  by  the  deceased,  thoug-h  the  deposits  at  the 
death  of  the  testator  could  be  applied  to  any  indebted- 
ness of  his  then  due.  Jordan  v.  Bank,  sii-pra.  It  is 
otherwise  as  to  the  surviving-  partner  who  merely  con- 
tinues the  business  for  the  purpose  of  winding-  it  up, 
and  of  whom  the  law  does  not  require  the  application 
of  the  funds  in  his  hands  to  the  debts  in  any  prescribed 
order.     The  bank  had  no  rig-ht,  however,  to  apply  the 

deposits  on  behalf  of  the  firm,  whether  made 
MvJaYK.    during-    its    existence    or    by  the  surviving- 

partner,  to  the  indebtedness  held  by  it 
against  one  of  the  partners,  and  it  could  make  no 
difference  that  this  was  the  note  of  one  partner  indorsed 
by  the  other.  It  was  an  individual  indebtedness,  and 
partnership  deposits  could  not  be  applied  to  it.  A  part- 
nership is  not  liable  for  the  debts  of  its  members. 
Strauss  v.  Frederick,  91  N.  C.  121.  Thoug-h  each 
partner  (except  in  limited  partnerships)  is  severall)^ 
responsible  for  the  entire  indebtedness  of  the  firm,  yet, 
notwithstanding-  that  fact,  the  individual  deposits  of  a 
partner  cannot  be  applied  to  the  indebtedness  of  the 
firm  to  the  bank.  Adams  r.  Bank,  113  N.  C.  332,  18 
S.  K.  513,  and  23  Lawy.  Rep.  Ann.  Ill,  and  notes; 
Bank  v.  Jones,  119  111.  407,  9  N.  E).  885  ;  Raymond  v. 
Palmer,  41  La.  Ann.  425,  6  South.  692  ;  Dawson  v. 
Bank,  5  Ark.  283.  Upon  the  issues  as  found,  the 
judg-ment  mig-ht  have  been  corrected  to  accord  with  the 
above  opinion  but  for  the  finding  upon  the  eighth  issue. 
The  plaintiff  is  entitled  to  recover  the  excess  of  the 
deposits  above  the  indebtedness  of  the  firm,  with  in- 
terest from  date  of  demand.     New  trial. 


B  CAS]  DEPOSITS  501 

Hodg-in  V.  People's  Nat.  Bank 

FuRCHES,  J.  (dissenting-).   The  firm  of  Hodg-in  Bros. 
&  Ivunn  was  composed  of  the  plaintiff,  G.  D.  Hodg-in, 
and  L.  ly.  Ivunn.      This  firm  was  indebted  to  the  de- 
fendant bank.     Ivunn  died,  and  the  plaintiff  became  the 
sole  surviving-  partner  of  the  firm  of  Hodg-in  Bros.  & 
Lunn.     After  the  death   of  Lunn,   the  plaintiff  com- 
menced collecting-  in  the  debts  due  the  firm,  and,  not 
knowing-  what  to  do  with  the  money,  went  to  the  presi- 
dent of  the  defendant  bank,   stated  the  fact  that  he 
wanted  the     president    to  advise   him  in   the   matter, 
when   the  president  advised   him   to  collect  the  assets 
as  fast  as  he  could,  and  pay  the  debts  of  the  firm.   The 
plaintiff  then  replied,   "The  firm  is  owing-  you,  and  I 
want  to  deposit  the  assets  with  you,  that  you  may  see 
that  it  is  properly  applied."     Thereupon  the  plaintiff 
made  his  deposits  in  the  defendant  bank,  and  they  were 
entered  as  deposits  of  Hodg-in  Bros.  &  Lunn.     Besides 
the  debt  due  the  defendant  by  the  firm  of  Hodg-in  Bros. 
&  Ivunn,  the  deceased  partner,   Lunn,  owed  the  bank 
an  individual  debt  of  S650,  with  plaintiff,  Hodg-in,  as 
his  surety.     Plaintiff  continued  to  make  deposits  in  the 
defendant  bank  as  he  collected  the  assets  of  the  firm 
until  he  had  about  the  sum  of  $4,000  on  deposit  with  the 
defendant.     But  about  the  1st  of  April,  1897,  it  became 
known  that  the  firm  of  Hodgin  Bros.  &  Lunn  was  in- 
solvent, and  that  Lunn's  estate  was  insolvent,  and  that 
the  plaintiff.  Hodg-in,   was  also  insolvent.     Upon  the 
defendant's  receiving-  information  of  the  insolvency  of 
the  firm,    of  the   estate  of  Lunn,    and  of  Hodg-in,  it  ap- 
plied a  sufficient  amount  of  the  money  so  deposited  with 
it  by   defendant   to  pay  the  debt  ag-ainst  the  firm,  and 
also  the   note   of   S650  of  Lunn,  to  which  the  plaintiff, 
Hodg-in,    was    surety,  amounting-    in  all  to  more  than 
$3,000.     The  question  is,  could  the  defendant  do  this? 
The  partnership  was  dissolved,  by  the   death  of  Lunn, 
on   the  16th  of  March,   18%,    and  plaintiff  became  the 
only  surviving-  partner, — became  the  leg-al  owner  of  all 
the  partnership  assets.     Bates,  Partn.   §  713.     Hence 
his  powers  to  dispose  of  the  partnership  assets  in  pay- 
ment of  debts  and  settling-  up  the  concern  is  derived 


502  DEPOSITS  [vol  r 

Hodg-in  V.  People's  Nat.  Bank 

from  his  title  to  the  property,  and  not  from  his  powers. 
/d.  After  a  dissolution  b}^  death,  the  surviving-  part- 
ner is  the  leg"al  owner  in  trust  for  the  purpose  of  wind- 
ing- up  the  concern,  payment  of  debts,  etc.  Id.  §  720. 
This  being-  so,  the  plaintiff  was  the  owner  of  the  money 
he  deposited  with  the  defendant,  and  the  bank  became 
his  debtor,  and  he  the  bank's  creditor,  to  the  amount 
deposited.  The  fact  that  the  deposits  were  made  in 
the  name  of  the  firm  of  Hodgin  Bros.  &  Lunn  made  no 
difference,  as  the  firm  was  dissolved  by  the  death  of 
Lunn;  and  the  defendant  knew  this,  and  knew  that 
plaintiff  was  making  the  deposits  as  the  surviving  part- 
ner. Morse,  Banking-,  §  326.  The  right  of  "lien, 
set-off,  and  application  only  exists  where  the  individual 
who  is  both  depositor  and  debtor  stands  in  both  these 
characters  in  precisely  the  same  relation  and  on  pre- 
cisely the  same  footing  towards  the  bank."  Id.  It 
seems  to  us  that  the  principles  enunciated  by  these  au- 
thorities, if  applied  to  this  case,  decide  it  against  the 
defendant's  rig-ht  to  apply  the  deposits  to  the  satisfac- 
tion of  the  debt  due  by  the  firm  of  Hodg-in  Bros.  & 
Lunn.  The  parties  owing-  the  debt  and  the  party  mak- 
ing- the  deposits  are  not  the  same.  The  debt  due  to 
the  bank  is  the  debt  of  Hodg-in  Bros.  &  Lunn.  The 
deposits  made  by  the  plaintiff  were  funds  that  belong^ed 
to  him.  It  is  true  that  they  belong-ed  to  him  as  trustee, 
but  the  defendant  cannot  be  allowed  to  interfere  with 
his  rig-hts  as  trustee  ag-ainst  his  will,  unless  it  has  a 
specific  lien  upon  these  deposits;  and  it  seems  to  us 
that  we  have  shown  that  it  has  no  such  lien.  The  same 
principle  is  involved  in  this  case  as  that  of  an  executor 
or  administrator  who  deposits  in  a  bank  to  which  his 
intestate  or  testator  was  indebted.  The  bank  cannot 
make  an  application  of  such  deposits  to  the  satisfaction 
of  the  debts  due  by  the  intestate  or  testator.  Jordan  r. 
Bank,  74  N.  Y.  467:  Appeal  of  Farmers'  &  Mechanics' 
Bank,  48  Pa.  St.  57.  It  is  true  that  it  is  contended 
that  the  reason  of  this  is  that  it  is  the  duty  of  the  per- 
sonal representative  to  pay  the  debts  of  the  deceased 
j6ro  7'ata.     And  there  is  that  difference,  but  we  do  not 


B  CAS]  DEPOSITS  503 

Richardson  v.  Denegre 

think  that  is  the  controlling  reason.  This  seems  to 
have  been  so  before  the  statute  requiring-  the  debts  to 
be  paid  f>ro  rata,  and  was  so  when  he  had  a  right  to  pre- 
fer creditors  of  equal  degree.  The  true  ground  is  the 
one  we  have  stated, — the  want  of  mutuality  in  debtor 
and  creditor.  It  seems  to  be  clear  that  the  bank  had 
no  right  to  apply  these  deposits  to  the  satisfaction  of 
the  note  of  Lunn  for  $650.  A  partnership  is  not  liable 
for  the  debts  of  its  individual  members  (Strauss  v. 
Frederick,  91  N.  C.  121),  and,  if  the  deposits  had  been 
made  by  the  firm,  they  could  not  have  been  applied  by 
the  defendant  to  the  satisfaction  of  the  individual  debts 
of  one  partner. 

Douglas,    J.    I   concur    in    the  dissenting   opinion. 


Richardson 

V. 

DenEGRE  ct  al. 

[Circuit  Court  of  Appeals,  Fifth  Circuit,  March  14,  i8gg.) 

Checks  Received  for  Collection,  and  Credited  When  Insolvent- 
Right  to  Reclaim.* — Checks  were  sent  to  a  bank  by  depositors  for 
the  purpose  of  having-  them  collected,  and  the  proceeds  placed  to 
their  credit  ;  and  they  were  received  and  placed  to  their  credit  when 
the  bank  officers  knew  that  it  was  insofvent,  and  when  the  depos- 
itors were  not  indebted  to  the  bank.  Held,  that  the  action  of  the 
bank  in  so  receiving  the  checks  at  such  time  was  such  a  fraud  upon 
the  depositors  as  gave  them  the  right  to  recover  the  checks  from 
the  bank's  receiver. 

Appeal  by  defendant  from  the  Circuit  Court  of  the 
United  States  for  the  E^astern  District  of  Louisiana. 
Affirmed. 

The  case  made  by  the  pleadings  and  sustained  by 
the  testimony  is  as  follows:  On  August  5,  18%,  the 
appellees,    regular   depositors    in    the    American    Na- 

*See  note  at  end  of  case. 


504  DEPOSITS  [vol  I 

Richardson  v.  Denegre 

tional    Bank   at   New   Orleans,     deposited    therein,    a 
few   minutes  after  the  bank    closed  at  3    o'clock  p.  m., 
the  following-  checks: 
"No.  8,935.  New  Orleans,  July  30,  1896. 

"New  Orleans  National  Bank,  pay  to  the  order  of 
J.  P.  Blair,  Ksq.,  forty-one  and  66-100  dollars. 

R.   K.  Craig,  Vice  President. 
"Fergus  G.  Lee,  Secretary. 

"$41.66." 

On  end:     "Sun  Mutual  Ins.  Co.,  52  Camp  St." 

Indorsed:  "Pay  Denegre,  Blair  &  Denegre.  J.  P. 
Blair. 

"Pay  to  American  National    Bank  for  collection  and 
deposit.     Denegre,  Blair  &  Denegre." 
"No.  655.         Citizens'  National  Bank  of  Louisiana, 

New  Orleans,  August  5,  1896. 

"Pay  to  the  order  of  Mess.  Denegre,  Blair  &  Dene- 
gre, Attys.,  twentv-one  hundred  and  twentj^-two  72- 
100  dollars.  "  Chas.  J.  Theard." 

Indorsed  :     "For  deposit.     Denegre,  Blair   &   Den- 
egre, Southern  Pacific  Company,  Atlantic  S3^stem." 
"New  Orleans,  August  5,  1896. 

"Pay  to  the  order  of  J.  P.  Blair  five  hundred 
dollars. 

"Jno.  B.  Richardson,  Local  Treasurer. 

"To  the  Citizens'  Bank,  New  Orleans. 

"S500.00." 

Indorsed:  "Pav  to  Denegre,  Blair  &  Denegre.  J. 
P.  Blair. 

"Pay  to  American  National  Bank  for  collection  and 
deposit.     Denegre,  Blair  &  Denegre. 

These  deposits  were  made  in  the  usual  course  of  busi- 
ness, for  the  purpose  of  having  the  checks  collected, 
and  the  proceeds  placed  to  their  credit.  At  the  time 
the  deposits  were  made,  while  credit  was  given  upon 
the  bank  book  of  appellees,  the  checks  themselves 
were  set  aside  like  all  other  deposits  received  that 
day,  and  kept  separate  and  apart  from  the  funds  of 
the  bank,  until  after  the  meeting  of  the  directors  in 
the  evening,    at  which  meeting   the  said  separation  of 


B  CAS]  DEPOSITS  505 

Richardson  v.  Denegre 

that  day's  deposits  was  affirmed  and  ratified.  Appellees 
were  not  indebted  to  the  bank,  but  had  over  $2,000  to 
their  credit  on  deposit.  The  bank  never  opened  its 
doors  ao-ain  for  business  after  the  receipt  of  the  said 
checks,  but  was  taken  charg-e  of  by  the  bank  exam- 
iners, and  subsequently  placed  in  the  hands  of  a 
receiver,  the  appellant  herein.  For  a  long-  time  the 
bank  had  been  in  such  a  condition  of  insolvency  as 
must  have  been  known  to  its  manag'ing'  officers.  The 
appellees  subsequently  stopped  payment  of  the  checks, 
and  they  were  never  collected,  and  are  still  in  the 
hands  of  the  bank's  receiver.  Demand  was  made  for 
their  return,  which  was  refused.  The  present  suit 
was  broug"ht  to  recover  possession  of  said  checks  in 
the  court  below,  which  g-ave  judgment  for  the  com- 
plainants, and  perpetually  enjoined  Frank  L.  Rich- 
ardson, as  receiver,  from  making- any  other  disposition 
of  the  said  checks  than  to  return  the  same  to  complain- 
ants ;  from  which  judg-ment  said  receiver  appealed, 
and  assig"ned  said  ruling*  as  error,  and  contended:  (1) 
The  court  erred  in  rendering-  a  decree  in  favor  of 
complainants;  (2)  in  not  holding-  that  the  relations 
of  the  complainants  to  the  bank,  as  a  depositor  of  checks 
in  controversy,  was  that  of  debtor  and  creditor;  (3)  in 
holding-  that  the  check  for  $2,122.76  drawn  by  Charles 
Theard,  and  then  indorsed  "For  deposit,"  did  not  vest 
in  said  bank;  and  (4)  that  the  court  erred  in  holding- 
that  it  appeared  from  the  evidence  that  the  bank  was 
hopelessly  insolvent,  to  the  knowledg-e  of  its  officers, 
at  the  time  of  the  deposit  of  the  checks  in  controversy. 

Chas.  S.  Rice,  for  appellant. 

E.  B.  Kriittschiiitt,  for  appellees. 

Before  Pardee  and  McCormick,  Circuit  Judg-es, 
and  SwAYNE,  District  Judg-e. 

SwAYNE,  District  Judg-e  (after  stating-  the  facts  as 
above).  While  it  is  well  established  that  the  checks  of 
depositors,  in  the  ordinary  course  of  business  with  the 
bank,  do  not  become  the  property  of  the  bank,  and  the 
relation  of  debtor  and  creditor  is  not  established,  but 


506  DEPOSITS  [vol  I 

Note 

that  of  principal  and  ag-ent  prevails  up  to  the  time  the 
check  is  collected,  and  money  is  received  by  the  bank, 
yet  we  think  the  decision  of  this  case  need  not  rest 
upon  that  well-established  proposition  of  law.  It  is 
true  that  the  late  president  of  that  bank  vigorously 
denied  that  he  had  any  knowledg-e  of  the  insolvency  of 
the  bank  before  the  nig-ht  in  question.  It  is  plainly 
evident,  not  only  from  the  conditions  which  the  bank 
has  since  been  shown  to  have  been  in, — conditions 
which  he  could  not  avoid  knowing-, — but  also  from  the 
records  of  the  president  and  cashier,  of  which  this 
court  has  taken  judicial  notice,  he  could  not  have  been 
telling-  the  truth.  His  action  setting-  these  checks  and 
other  deposits  of  the  5th  of  Aug-ust  aside,  failing-  to 
raing-le  them  with  the  moneys  of  the  bank,  is  strong- 
proof  that  he  was  aware  that  the  bank  was  hopelessly 
insolvent.  The  testimony  of  the  bank  examiners  shows 
that  the  bank  had  been  hopelessly  insolvent  for  months. 
The  officers  were  where  they  could  have  known,  they 
should  have  known,  and  must  have  known  its  actual 
condition.  Of  this  insolvency,  however,  it  is  evident 
that  the  appellees  had  no  knowledg-e  or  intimation,  for 
they  not  onh'  allowed  their  larg-e  deposit  to  remain  in 
the  bank,  but  sent  that  which  is  in  controversy  here, 
which  they  would  not  have  done  if  they  had  had  the 
slig-htest  intimation  that  the  bank  was  in  trouble. 
The  action  of  the  bank  in  thus  receiving-  said  checks  for 
collection  was  such  a  fraud  upon  the  appellees  as  g-ave 
them  the  rig-ht  to  demand  the  return  of  the  checks. 
We  do  not  feel  called  upon  to  cite  any  authorities  to 
establish  the  doctrine  that  the  checks  received  under 
such  circumstances  did  not  become  the  property  of  the 
bank,  but  remained  that  of  depositors,  who  have,  under 
the  circumstances,  the  rig-ht  to  recover  the  same  ;  and 
the  judgment   of  the  lower  court  is  therefore  affirmed. 


Banks — Insolvency — Rights  of  Depositor. — Where  the  officers  of  a 
bank  know  that  it  is  hopelessly  insolvent,  the  title  to  deposits  made 
thereafter   remains   in  the   depositors,   and    they    may   recover   the 


B  CAS]  CHECKS  507 

Elder  v.  Franklin  Nat.  Bank  of  City  of  New  York 

amount  thereof  in  full.  Wasson  v.  Hawkins,  59  Fed.  Rep.  233, 
Somerville  v.  Beal,  49  Fed.  Rep.  790;  Meridian  First  Nat.  Bank  v. 
Strauss,  66  Miss.  479,  14  Am.  St.  Rep.  579  ;  Martin  v.  Webb,  110  U. 
S.  7;  New  York  Brew.  Co.  t'.  Hig-gins,  79  Hun  (N.  Y.)  250;  St. 
Louis,  etc.,  R.  Co.  v.  Johnston,  133  U.  S.  566  ;  Parker  r.  Crawford,  3 
Tex.  App.  Civ.  Cas.  g  365  ;  American  Trust,  etc..  Bank  v.  Gueder, 
etc.,  Mfg-.  Co.,  150  111.  336;  Patts  et  al.  v.  Schmucker  (Md.),  6  Am. 
&  Eng-.  Corp.  Cas.,  N.  S.,  37. 

At  common  law  one  who  deposits  money  in  an  insolvent  bank, 
believing-  it  to  be  solvent,  and  thereby  loses  his  money,  has  no 
cause  of  action  ag-ainst  the  directors,  unless  the  deposit  was  in- 
duced bv  their  fraudulent  conduct.  Minton  v.  Stahlman  (Tenn.)  34 
S.  W.  Rep.  222.  Compare  Showalter  v.  Cox  (Tenn.),  37  S.  W. 
Rep.  286  ;  Friberg  v.  Cox  (Tenn.) ,  37  S.  W.  Rep.  283. 


Elder 


Franklin  Nat.  Bank  of  City  of  New  York. 

{Supreme  Cout't  of  New  York,  Appellate   Term,  Jan,  2j,  iSgg.) 

Checks — Failure  to  Stop  Payment. — Where  a  bank,  through  an 
oversight,  pays  a  check  drawn  b3'  a  depositor  to  the  order  of  a  third 
party,  after  it  has  received  an  order  from  the  depositor,  not  to  honor 
the  check,  the  bank  is  liable  to  its  depositor  for  the  amount  thereof, 
although  there  was  an  agreement  between  the  bank  and  the  depos- 
itor to  the  effect  that  the  bank  would  not  be  liable  for  failure  to 
obey  such  orders,  bvtt  would  merely  endeavor  to  execute  them. 

Appeal  by  defendant  from  boroug-h  of  Manhattan, 
municipal  court,  First  district.     Affirmed. 

Argued  before  Beekman,  P.  J.,  and  Gildersleeve 
and  GiEGERiCH,  JJ. 

Joiiatfian  C.  Ross,  for  appellant. 
Natfian  Otting-er,  for  respondent. 

Beekman,  P.  J.  The  plaintiff  had  an  account  with 
the  defendant.  On  the  3d  day  of  March,  1898,  he  drew 
against  the  account  a  check,  dated  March  8,  1898,  for 
the  sum  of  S40,  to  the  order  of  the  Adek  Manufacturing- 
Company.  On  March  5th  he  sent  a  notice  in  writing- 
to  the  defendant  not  to   pay  it.     This  notice  was  duly 


508  CHECKS  [vol  I 

Elder  v.  Franklin  Nat.  Bank  of  City  of  New  York 

received,  and,  in  accordance  therewith  and  pursuant  to 
the  practice  of  the  defendant  in  such  cases,  an  entry  of 
the  receipt  of  such  notice  was  made  by  the  paying-  teller 
of  the  bank  in  a  book  which  was  kept  for  the  purpose, 
and  a  similar  entry  was  also  made  by  the  book-keeper 
in  his  ledg-erag-ainst  Elder's  account.  Notwithstanding- 
this,  when  the  check  in  question  came  ia  throug-h  the 
clearing-  house,  it  was  paid,  through  an  oversig-ht,  as 
the  bank  officials  testify,  and  this  action  was  brought 
for  the  purpose  of  recovering-  the  amount. 

The  only  defense  interposed  by  the  defendant  bank, 
which  calls  for  consideration  on  our  part,  is  that  by 
express  ag-reement  with  the  plaintiff,  made  before  the 
check  in  question  was  drawn,  it  was  exempted  from 
any  liability  whatsoever  in  such  a  case.  The  ag-reement 
thus  set  forth,  with  other  matters  not  material  to  the 
question  here  presented,  was  printed  upon  the  inside 
of  the  cover  of  plaintiff's  pass  book,  and  reads  as 
follows  : 

"It  is  further  ag-reed  that  the  bank  shall  not  be 
responsible  for  the  execution  of  an  order  to  stop  pay- 
ment of  a  check  previously  drawn  ;  that  the  bank  will 
endeavor  to  execute  such  orders,  but  that  no  liability 
shall  be  created  by  failure  so  to  do  ;  and  that  no  rule, 
usag-e,  or  custom  shall  be  construed  to  create  such 
liability." 

It  appears  that  the  pass  book  in  question  was  sub- 
stituted for  a  previous  one,  which  the  plaintiff  had 
received  when  he  originally  became  a  depositor  in  the 
bank,  and  w^hich  did  not  contain  any  such  stipulation. 
The  plaintiff  testifies  that  he  did  not  read  the  alleged 
ag-reement,  and  was  not  aware  of  what  it  contained  at 
the  time  the  check  in  question  was  drawn.  The 
counsel  for  the  defendant  claims  that  there  is  evidence 
in  the  case  tending  to  show  the  contrary,  but  it  is 
unnecessary  for  us  to  pass  upon  this  question,  which 
is  one  of  fact,  and  wdiich,  it  must  be  assumed,  the  trial 
justice  determined  in  favor  of  the  plaintiff.  But,  even 
assuming-  that  the  fact  had  been  otherwise  found,  we 
are   still  of  the  opinion  that,  under  the  circumstances, 


B  CAS]  CHECKS  509 

Elder  v.  Franklin  Nat.  Bank  of  City  of  New  York 

the  defendant  was  not  relieved  by  the  agreement  from 
the  consequences  of  its  negfligfent  act.  Undoubtedly, 
in  the  absence  of  any  agreement,  the  bank  was  bound 
to  respect  the  notice  which  it  had  received,  and  for  a 
failure  to  observe  the  directions  of  its  depositor  in  that 
reg^ard  it  would  have  been  clearly  liable.  The  check 
was  a  mere  order  upon  the  bank  to  pay  from  the 
depositor's  account  according- to  the  Instructions  in  that 
respect  contained  therein,  and  was  subject  to  revocation 
by  the  drawer  at  any  time  before  it  was  paid  ;  and.  If 
the  bank  should  pay  after  notice  of  such  revocation,  it 
would  be  held  to  have  paid  out  its  own  funds,  and 
could  not,  therefore,  charg-e  its  depositor  with  the 
amount,  but  must  bear  the  loss  itself.  The  ag-reement 
in  question  is,  therefore,  one  which  is  in  derog-atlon  of 
the  common  law  in  such  cases,  and,  being"  framed  by 
the  defendant  itself  for  its  own  benefit,  must  be  strictly 
construed. 

It  will  be  observed  that  such  ag-reement  does  not 
declare  unconditionally  that  for  the  failure  to  observe 
a  stop  order  the  bank  shall  not  be  liable,  but  it  Invites 
the  assent  of  its  depositors  to  the  engag-ement  by 
ag-reeing-  that  it  will  endeavor  to  execute  such  orders. 
This  Is  a  most  Important  qualification,  and  was  doubt- 
less Inserted  as  an  assurance  to  them  that  the  bank 
would  still  exercise  some  care  in  the  matter.  Indeed, 
it  can  scarcely  be  credited  that  any  bank  could  obtain 
depositors  on  any  account  under  an  ag-reement  that 
under  no  circumstances  should  it  be  responsible  for  a 
failure  to  observe  their  directions  with  respect  to  the 
stoppag-e  of  checks.  The  defendant.  It  will  be  ob- 
served, did  not  refuse  to  receive  any  such  notices. 
Indeed,  the  evidence  In  the  case  shows  that  it  not 
only  recog-nlzed  the  rig-ht  of  Its  depositors  In  that 
regard,  but  also  provided  a  method  of  registering  such 
notices  or  orders,  so  as  to  assure  the  proper  observ- 
ance of  them  by  its  clerks,  thus  acknowledging  the 
obligation  which  It  had  assumed  to  "endeavor  to  exe- 
cute such  orders."  Upon  a  prooer  construction  of  the 
language  used  in  the  agreement,  we  are  of  the  opinion 


510  CHECKS  [VOIv  I 

Elder  V.  Franklin  Nat.  Bank  of  City  of  New  York 

that  its  fair  import  was  that  the  defendant  should  not 
be  liable,  if  in  good  faith  it  paid  the  check  that  had 
been  stopped,  unless  it  failed  properly  to  fulfill  its 
ag-reement  to  endeavor  to  comply  with  the  depositor's 
direction.  In  other  words,  the  promise  to  make  such 
endeavor  necessarily  imported  th^  exercise  by  the  bank 
of  at  least  ordinary  care  in  so  doing".  Any  other  con- 
struction than  this  would  not  only  render  the  engage- 
ment meaningless,  but  also  most  injuriously  misleading 
to  depositors. 

The  agreement,  then,  is  to  be  construed  as  if  it  read 
as  follows  (the  words  inserted  by  us  being  italicized): 

"It  is  further  agreed  that  the  bank  shall  not  be 
responsible  for  the  execution  of  an  order  to  stop  pa}^- 
ment  of  a  check  previously  drawn;  that  the  bank  will 
endeavor  to  execute  such  orders,  but  that  no  liability 
shall  be  created  by  failure  so  to  do,  vjhere  the  bank  has 
exercised  ordinary  care  in  that  rt'^«r<7' ;  and  that  no 
rule,  usage,  or  custom  shall  be  construed  to  create 
such  liability." 

The  courts  are  not  prone  to  construe  instruments  in 
such  a  way  as  to  support  a  waiver  of  liability  for  neg- 
ligence. Appleby  v.  Bank,  62  N.Y.  12;  Allen  v.  Bank, 
69  N.  Y.  314;  Mynard  v.  Railroad    Co.,  71   N.  Y.  180. 

The  first  two  cases  above  cited  bear  upon  the  lia- 
bility of  a  savings  bank  for  the  paj^ment  of  money  to 
the  wrong  person.  In  the  first  case  the  by-law  of  the 
bank  read: 

"Although  the  bank  will  endeavor  to  prevent  fraud 
upon  its  depositors,  yet  all  pa3'ments  to  persons  pro- 
ducing the  pass  books  issued  by  the  bank  shall  be 
valid  payment  to  discharge  the  bank." 

In  commenting  upon  the  rule.  Church,  C.  J., 
giving  the  opinion  of  the  court,  says  (page  17): 

"But  these  rules  do  not  dispense  with  the  exercise  of 
ordinary  care  on  the  part  of  the  officers  of  the  bank. 
If,  by  a  regulation  designed  to  prevent  fraud  upon 
depositors,  which  by  the  rules  the  bank  promised  to 
'endeavor'  to  do,  a  fact  or  circumstance  is  brought  to 
the   knowledge  of  the  officers,  which  is   calculated  to. 


B  CAS]  CHECKS  511 

Elder  v.  Franklin  Nat.  Bank  of  City  of  New  York 

and  ought  to,  excite  the  suspicion  and  inquiry  of  an 
ordinarily  careful  person,  it  is  clearly  the  duty  of  the 
officers  to  institute  such  inquiry,  and  a  failure  to  do  so 
is  neoflig-ence,  for  which  the  bank  would  be  liable;  and 
such,  I  understand,  is  the  doctrine  of  the  cases  cited 
by  the  defendant.  'The  officers  of  these  institutions 
are  held  to  the  exercise  of  reasonable  care  and  dili- 
g-ence." 

The  second  case  above  cited  is  substantially  to  the 
same  effect. 

The  third  case  is  one  against  a  common  carrier, 
where  the  latter  claimed  exemption  from  liability  for 
its  negligence  under  an  agreement,  contained  in  the 
contract  of  shipment,  to  "release  and  discharge  the 
said  company  from  all  claims,  demands,  and  liabilities, 
of  every  kind  and  character  whatsoever,  for  or  on 
account  of,  or  connected  wnth,  any  damage  or  injur^^ 
to,  or  the  loss  of,  said  stock,  or  any  portion  thereof, 
from  w^hatsoever  cause  arising."  It  was  there  held 
that  while,  taken  literally,  the  language  would  include 
a  loss  from  negligence,  it  would  not  be  so  construed; 
the  court  saying  (page  183): 

"Kvery  presumption  is  against  an  intention  to  con- 
tract for  immunit}^  for  not  exercising  ordinary  diligence 
in  the  transaction  of  any  business,  and  hence  the 
general  rule  is  that  contracts  will  not  be  so  construed, 
unless  expressed  in  unequivocal  terms." 

It  will  be  noticed  that  the  court  rests  the  principle 
of  its  decision,  not  upon  law  which  is  peculiar  to 
common  carriers,  but  upon  a  rule  applicable  to  all 
contracts. 

We  are  clearly  of  the  opinion  that  the  construction 
which  we  have  given  to  the  agreement  in  question  is 
sustained  by  both  reason  and  authority,  and,  as  the 
record  discloses  evidence  enough  to  support  the  finding 
of  the  trial  justice  that  the  defendant  had  been  negli- 
gent, it  follows  that  the  judgment  must  be  affirmed. 

Judgment  affirmed,  wnth  costs.     All  concur. 


512  CHECKS  [vol  I 

Rice  V.  Citizens'  Nat.  Bank 


Rice  ci  al. 

V. 

Citizens'  Nat.  Bank. 

[Court  of  Appeals  of  Kentucky,  June  2,  i8gg.) 

Payment  of  Check  on  Forged  indorsement.* — The  payment  by  a 
bank  of  a  check  to  any  person  save  the  payee  himself,  unless  it  be 
payable  to  bearer,  is  a  payment  at  its  peril ;  and  if  the  indorsement 
is  forg-ed,  it  is  a  payment  out  of  the  bank's  funds,  and  the  depositor 
cannot  be  charged  therewith. 

Relation  of  Bank  to  Depositor. — A  bank  receiving-  a  deposit  with 
instructions  to  honor  the  checks  of  a  certain  person  to  certain  par- 
ties does  not  thereby  become  the  agent  of  the  depositor,  but  merely 
his  debtor. 

Appeal,  by  plaintiff  from  Garrard  county  circuit 
court.     Reversed. 

D.  B.  Baker,  for  appellants. 

Wm.  M.  Johnston  and  R.  P.  Jacobs,  for  appellee. 

White,  J.  In  October,  1896,  appellants  wrote  to 
appellee  as  follows  :  "Louisville,  Ky.,  Oct.  10,  18%. 
casestitd  ^^'    B.   F,    Hudson,    Cashier,    Lancaster, 

Ky. — Dear  Sir :  We  have  your  letter  of 
yesterday  in  answer  to  ours  in  regard  to  the'standing  of 
certain  parties,  which  is  explicit  and  satisfactory,  and 
would  have  been  g-lad  if  you  had  written  us  so  plainly  in 
your  first  letter.  We  thank  you,  however,  very  much  for 
the  pains  you  have  taken  in  answering-  our  last  letter. 
We  now  inclose  you  check  for  seven  hundred  dollars,  for 
which  you  will  please  honor  Mr.  M.  W.  Johnson's  checks 
to  the  following*  parties,  and  for  the  following"  amounts. 
He  writes  us  that  he  g^ave  parties  checks  payable  at 
your  bank  on  Mondav,  the  12th,  P.  A.  Spainhour, 
$100 ;  J.  K.  Royce,  S150  ;  J.  T.  Dawson,  $100  ;  Isaiah 
S.  Conley,  $150  ;  A.  J.  Bennett,  S150  ;  Willis  Turner, 

*See  note  at  end  of  case. 


B  CAS]  CHECKS  513 

Rice  c'.  Citizens'  Nat.  Bank 

S50, — as  M.  Johnson  has  forwarded  to  us  notes  of  the 
above  parties  as  stated,  and  writes  that  he  had  given 
checks  on  your  bank  for  the  above  amounts.  Yours, 
truly,  Rice  &  Givens/'  On  the  receipt  of  this  check 
the  $700  was  placed  to  the  credit  of  Johnson.  After- 
wards the  several  checks  drawn  by  Johnson  to  these 
named  parties  were  presented  by  Johnson  with  the 
parties'  names  indorsed  on  the  back  of  each,  and  the 
money  was  paid  by  the  appellee  to  Johnson  on  the 
statement  that  he  had  been  requested  by  these  parties 
to  draw  the  money  for  them,  and  bring-  it  to  them,  as. 
they  were  busy  at  work.  It  finally  developed  that  the 
checks  drawn  by  Johnson  were  never  indorsed  by  or 
delivered  to  these  parties,  and  that  they  had  never 
signed  the  notes  sent  by  Johnson  to  appellants.  John- 
son himself  had  signed  each  one  of  the  notes  as  surety. 
The  signatures  of  the  principals  were  forgeries.  This 
action  was  brought  by  the  appellants  to  collect  from 
appellee  the  deposit  of  S700  upon  the  allegation  that 
that  sum  had  been  deposited  with  appellee,  and  had 
not  been  paid  to  them,  or  upon  their  order.  The 
defense  presented  is  the  letter  and  the  payment,  as 
above,  to  Johnson.  It  is  clearly  shown  by  the  parties, 
that  they  were  ignorant  of  the  signature  of  their  names 
to  the  notes  or  indorsement  of  the  checks,  and  that  those 
signatures  were  forgeries.  Johnson  is  dead.  The  law 
and  facts  were  submitted  to  the  court,  and  judgment 
was  rendered  for  appellee  bank,  and,  after  reasons  and 
motion  for  new  trial  had  been  overruled,  this  appeal  is. 
prosecuted. 

The  court  found  as  facts  that  the  only  authority  the 
appellee  had  to  pay  the  checks  of  Johnson  was  the 
letter  above  ;  that  the  checks  were  presented  by  John- 
son and  paid  to  him  by  appellee  ;  that  at  the  time  of 
presentation  they  were  indorsed  by  the  proper  signa- 
tures, but  that  the  signatures  were  not  written  by  the 
several  parties  to  whom  the  checks  were  payable,  or 
with  their  knowledge  or  consent,  and  was  never 
authorized  or  ratified  by  either  of  them,  and  that 
neither  of  said  payees  ever  received  any  of  the  proceeds 

B  CAS — 33 


514  CHECKS  [vol  I 

Rice  ?'.  Citizens'  Nat.  Bank 

of  said  checks.  In  short,  the  court  found  that  the 
checks  were  drawn  by  Johnson  for  the  proper  sums  as 
the  letter  of  instruction  directed,  and  the  checks  were 
presented  and  paid  by  the  bank  on  forged  indorse- 
ments, and  that  the  parties  to  whom  the  bank  was 
authorized  to  pay  the  S700  on  checks  never  received 
any  part  thereof.  The  court  then  concluded,  as  a 
matter  of  law,  that  the  bank  was  not  liable,  and  again, 
that  it  had  a  remedy  in  the  notes  signed  by  Johnson  as 
surety  of  these  various  persons,  and  until  that  remedy 
was  exhausted  it  could  not  hold  the  bank  liable.  A 
deposit  in  bank  of  an  ordinary  deposit  creates  the  rela- 
tion of  debtor  and  creditor.  If  the  deposit 
Payment  of  ciierk    be  for  a  sDccial  purpose,  under  instructions. 

Oil  Forffcd  .  .  . 

Indorsement.  thcsc  lustructious  must  be  Complied  with  by 
the  bank.  There  may  be  a  special  deposit, 
so  as  to  create  a  bailment,  but  that  can  have  no  appli- 
cation here.  It  is  immaterial  whether  this  deposit  of 
$700  be  treated  as  a  general  deposit  or  as  a  deposit  for 
a  special  purpose  other  than  bailment.  The  money 
was  paid  out  precisely  as  the  special  instructions  with 
the  deposit  provided,  except  that  the  signatures  of  the 
payees  of  the  checks  were  forged.  The  principle 
seems  to  be  well  settled  that  a  payment  by  a  bank  of  a 
check  to  any  person  save  the  payee  himself,  except  it 
be  payable  to  bearer,  is  a  payment  at  its  peril.  If  the 
signature  of  indorsement  is  genuine,  it  is  a  payment 
out  of  the  depositor's  funds  ;  if  it  is  forged,  it  is  a 
payment  out  of  the  bank's  funds,  and  the  depositor 
cannot  be  charged  with  it.  Shipman  t'.  Bank  (N.  Y. 
App.)  27  N.  K.  371  ;  Hatton  v.  Holmes  (Cal.)  31  Pac. 
1131  ;  Bank  v.  Whitman,  94  U.  S.  347  ;  Bank  v.  Mor- 
gan, 117  U.  S.  112,  6  Sup.  Ct.  057  ;  Bank  v.  Burke 
(Ga.)  7  S.  E^.  739,  and  many  other  cases.  We  are  of 
opinion  that  under  the  facts  found  by  the  court  his  con- 
clusions of  law  are  error.  We  conclude  that  the  bank 
is  liable  to  appellants  for  this  deposit.  The  payment 
on  a  forged  check  was  a  payment  b}^  appellee  at  its 
peril.  It  \vas  not  a  payment  of  appellants'  funds, 
however  great  the  care  used  by  the  appellee.     It  is  not 


B  CAS]  CHECKS  515 

Winchester  Bank  v.  Clark  County  Nat.  Bank 

a   question  of    care  or  neg-lig-ence.     The  payment  was 
not  to  the  payee  of  checks,  but  a  paymeut  upon  what 
purported  to  be  his  order.     The  order  (indorsement  on 
the  check)  was  a  forg-ery.     For  this  payment  appellants 
are  in  no  way  liable.     There  was  no  relation 
of  principal  and  ag-ent   between  the  appel-  foDepftVio"*"'^ 
lants  and  appellee.     It  was  pure  debtor  and 
creditor.      Wherefore,    for  the  reasons   indicated,    the 
judg-ment  is  reversed,  and   cause  remanded  for  a  new 
trial,  and  for  proceeding's  consistent  herewith. 

NOTE. 

Checks — Forged  Indorsements — Depositor's  Liability. — A  deposi- 
tor cannot  be  held  liable  for  money  paid  on  a  forged  indorsement  of 
his  check,  if  he  has  not  been  neg'ligent.  Shipman  v.  State  Bank. 
126,  N.  Y.  318,  22  Am.  St.  Rep.  821  ;  Jackson  v.  National  Bank,  92 
Tenn.  154,  36  Am.  St.  Rep.  81  ;  Chicago  First  Nat.  Bank  v.  North- 
western Nat.  Bank,  152  111.  296,43  Am.  St.  Rep.  247;  Pickle  v. 
Muse,  88  Tenn.  390,  17  Am.  St.  Rep.  900  ;  Bristol  Knife  Co.  v.  Hart- 
ford First  Nat.  BanT^,  41  Conn.  421,  19  Am.  Rep.  517  ;  Belknap  v. 
Nat.  Bank  of  N.  A.,  100  Mass.  376,  97  Am.  Dec.  105;  Hatton  z-. 
Holmes,  97  Cal.  208  ;  Brixen  v.  Deseret  Nat.  Bank,  5  Utah  504  ; 
Washington  First  Nat.  Bank  v.  Whitman,  94  U.  S.  343  ;  United 
States  V.  Nat.  Fxch.  Bank,  45  Fed.  Rep.  163  ;  Thomson  v.  Bank  of 
British  North  America,  82  N.  Y.  1  ;  Williams  v.  Drexel,  14  Md.  566  ; 
Millard  v.  Nat.  Bank  of  Republic,  3  MacA.  (D.  C.)  54  ;  Citizens' 
Nat.  Bank  v.  Importers',  etc.,  Bank,  119  N.  Y.  195  ;  Morgan  v.  State 
Bank,  11  N.  Y.  404  ;  Breeman  v.  Duck,  11  M.  &  W.  251,  Robinson  v. 
Tucker,  16  Q.  B.  560,  71    E.  C    E.    760;  Mead   v.  Young,  4  T.   R.  28. 


Winchester  Bank 

1'. 

Clark  County  Nat.  Bank. 

(Court  of  Appeals  of  Kentucky,  May  2j,  J8gg.) 

Checks — Attachment  Liens — Priority.* — A  check  drawn  prior  to, 
but  presented  subsequent  to  the  service  of  an  attachment  upon  the 
bank  as  garnishee,  is,  to  the  amount  for  which  it  is  drawn,  an  appro- 
priation of  any  funds  in  the  bank  to  the  credit  of  the  drawer  at  its 
presentation,  regardless  of  the  attachment  lien. 

*See  note  at  end  of  case. 


516  CHECKS  [vol  I 

Winchester  Bank  i'.  Clark  County  Nat.  Bank 

Appeal  by  plaintiff  from  Clark  county  circuit  court. 
Reversed. 

J.   W.  Benton,  for  appellant. 
Beck}ier  dc  Joucii,  for  appellee. 

White,  J.  On  February  10,  1897,  the  appellant, 
Winchester  Bank,  sued  out  an  attachment  against  I.  C. 
Skinner,  claiming-  $315.37,  and  had  appellee  served  as 
o-arnishee.  At  that  time  appellee  had  on  deposit  the 
sum  of  $671.39  to  the  credit  of  I.  C.  Skinner.  On  the 
same  day  the  attachment  was  served,  but  afterwards, 
a  check  for  $393.95,  drawn  February  8th,  by  I.  C. 
Skinner,  in  favor  of  C.  C.  Skinner,  was  presented  by 
appellant  as  the  agent  of  C.  C.  Skinner  ;  but,  there 
being  but  $356.02  on  deposit,  after  keeping  back  the 
$315.37  under  the  attachment,  the  C.  C.  Skinner  check 
was  refused  payment.  After  the  execution  of  the  order 
of  attachment,  the  appellee  paid  out  on  checks  of  I.  C. 
Skinner  the  balance  above  the  amount  of  the  attach- 
ment. The  C.  C.  Skinner  check  was  returned  as  un- 
collectible and  protested.  In  May,  1897,  the  appellee 
iiled  its  answer  as  garnishee,  admitting  that  at  the  date 
of  the  attachment  it  had  to  the  credit  of  I.  C.  Skinner 
the  sum  of  S671.39,  and  then  held  subject  to  the  order 
of  the  court  S315.37.  C.  C.  Skinner  filed  a  petition, 
asked  to  be  made  a  party,  and  claimed  the  fund 
attached,  alleging  that  the  appellant  sued  out  its  order 
of  attachment  after  it  received  his  check  for  collection, 
and  before  it  presented  it  for  payment,  and  that  his 
check  was  drawn  February"  8,  1897, — two  days  before 
the  attachment  was  sued  out.  Without  answering  or 
denying-  the  allegations  of  the  petition  of  C.  C.  Skin- 
ner, appellant  filed  an  amended  petition,  seeking  to 
hold  appellee  liable  for  the  difference  between  the  de- 
posit, S671.39,  and  the  C.  C.  Skinner  check  of  S393.95, 
by  reason  of  the  facts,  as  alleged,  that  this  sum  was 
paid  out  with  knowledge  of  the  existence  of  the  C.  C. 
Skinner  check,  and  after  the  service  of  the  attachment. 
To  this  amended  petition  the  court  sustained  a  demur- 
rer, and  directed  appellee  to  pay  to  C.  C.  Skinner  the 


B  CAS]  CHECKS  517 

Note 

sum  of  S315.37  attached.  Appellant  failing-  to  plead 
further,  its  action  as  to  appellee  g*arnishee  was  dis- 
missed, and  from  that  order  it  appeals. 

It  appears  from  the  amended  petition  that  on  the  10th 
day  of  February  appellee  had  on  deposit  $671.39,  and 
received  notice  b}'  the  check  to  C.  C.  Skinner  of  an 
appropriation  of  S393,95,  and  by  the  attachment  of  a 
lien  for  S315.37.  There  were  not  enoug-h  of  funds  to 
pay  these  two  liens,  yet  after  that  da}'  appellee  paid  on 
other  checks  drawn  b}'  I.  C.  Skinner  subsequent  in 
date  to  the  one  for  S393.95,  as  well  as  the  date  of  the 
attachment,  the  sum  of  $356.02.  Taking-  this  state- 
ment to  be  true,  as  it  must  on  demurrer,  we  are  of 
opinion  that  the  appellee  g-arnishee  is  liable  for  the 
balance  on  deposit,  after  paying-  the  check  for  S393.95 
in  full.  It  is  clear  that  this  check  drawn  on  the  8th 
was  an  appropriation  of  any  funds  on  hand  at  its  pre- 
sentation that  remained  to  the  credit  of  I.  C.  Skinner, 
and  this  reg-ardless  of  the  attachment  lien  of  appellant. 
Appellee  could  have  paid  the  S393.95  check  in  full  on 
presentation  on  the  10th,  or,  if  it  deemed  this  course 
unsafe,  it  could  have  refused  to  pay  to  any  person  the 
S671.39  till  the  equitable  liens  were  settled.  In  utter 
disreg-ard  of  the  S393.95  check,  which  appellee  refused 
to  pay  because  of  the  attachment,  it  paid  out  the  bal- 
ance on  deposit,  saving-  only  the  amount  fixed  by  the 
attachment.  The  demurrer  to  the  amended  petition 
should  have  been  overruled.  For  this  error  the  judg-- 
ment  is  reversed,  and  cause  remanded  for  proceedings 
consistent  herewith. 


NOTE. 


Attachments — Priority. — A  subsequent  attachment  will  not  take 
precedence  of  a  lien  or  incumbrance  on  a  sale,  or  conveyance  of  the 
attached  property  which  is  valid  and  antedates  such  attachment. 
^.Valker  r.  Houston  (Tex.),  29  S.  W.  Rep.  1139. 


518  OFFICERS  [vol  I 

Stuart  V,  Bank  of  Staplehurst 


Stuart 
Bank  of  Staplehurst. 

[Supreme  Court  of  Nebraska,  Feb.  g,  iSgg.) 

Application  for   Removal  to   Federal  Court — Jurisdiction. — In  an 

action  in  a  state  court  wherein  a  removal  to  a  United  States  court 
is  sought  under  the  provisions  of  section  2  of  the  act  of  cong-ress  of 
March  3,  1887,  as  corrected  in  1888  (see  25  Stat.  433),  and  it  appears 
from  the  face  of  the  record  that  the  suit  is  not  a  removable  one,  the 
application  does  not  deprive  the  state  court  of  its  jurisdiction. 

Same — Same. —  The  better  practice  in  such  a  case  is,  upon  a 
proper  application  in  the  state  court  for  removal  to  the  federal 
court,  for  the  state  court  to  suspend  proceedings  in  the  suit,  and 
await  the  action  of  the  federal  tribunal  on  a  motion  to  remand,  but 
its  action  during  the  interim  may  be  of  force  and  valid. 

National  Banks — False  Statements — Liability  of  Directors — Rem- 
edies.*— Directors  of  a  national  bank  who,  in  simulated  performance 
of  the  duties  prescribed  by  the  law  applicable  to  such  an  institution, 
relative  to  the  preparation  and  publications  of  advertisements, 
statements,  and  reports,  knowingly  make  and  publish  false  state* 
ments  and  reports  of  the  financial  condition  of  the  bank,  witii 
intent  to  deceive,  and  such  matters  are  believed  and  acted  upon  by 
parties,  to  their  damage,  are  liable  for  the  damages,  in  an  action 
for  the  deceit. 

Same — Same — Same — Same. — The  liabilities  which  are  fixed  in 
the  national  banking  law  for  violation  of  its  provisions  are  not 
exclusive,  and  do  not  preclude  the  action  for  deceit. 

Same — Same — Pleading. — The  petition  in  the  case  at  bar  held  to 
state  a  cause  of  action  for  deceit,  and  not  for  relief  under  the 
national  banking  law,  and  to  present  no  federal  question  for 
adjudication. 

Same — Same. — The  statements  and  reports  which  are  required 
and  are  made  to  the  comptroller,  and  published  in  the  newspapers, 
have  among  their  purposes  that  of  conveyance  of  information  to 
those  persons,  each  or  all,  who  contemplate  dealings  with  the  bank 
in  which  its  financial  condition  enters  as  a  vital  matter. 

Parties — Misjoinder. — A  petition  in  an  action  for  a  tort  which 
joins  several  parties  as  defendants,  if  it  states  a  joint  act,  and 
relative  to  a  tort,  which  may  from  its  nature  be  joint  or  committed 
by  persons  in  combination,  is  not  open  to  attack  by  demurrer  on 
the  ground  of  misjoinder  of  parties  defendant. 

Questions  for  Review. — Questions  of  which  there  is  no  assignment 
in  the  petition  in  error  will  not  be  considered  on  review.- 

(Sj'llabus  by  the  Court.) 

*See  notes  at  end  of  case. 


B  CAS]  OFFICERS  519 

Stuart  V.  Bank  of  Staplehurst 

Error  by  defendant  to  Seward  county  district  court. 
A  'ffirmed. 

C.  C.  Flansburg ,  for  plaintiff  in  error. 
Geo.    W.    Lozi'lcy,    Pound   d-    Burr,    and    Biggs  & 
Thomas,  for  defendant  in  error. 

Harrison,  C.  J.  The  defendant  in  error  instituted 
this  action  in  the  district  court  of  Seward  county,  and 
alleg-ed  for  cause  that  the  plaintiff  in  error  and  parties 
who  were  co-defendants  were,  at  the  times  tase  stated 
of  the  occurrences  upon  which  the  suit  was 
predicated,  directors  of  a  national  bank,  in  the  business 
which  its  name  indicates,  in  the  city  of  Lincoln,  and  at 
various  stated  times  made  and  published,  or  caused 
them  to  be  published,  in  newspapers  of  g-eneral  circu- 
lation in  said  city  and  in  the  state  of  Nebraska,  certain 
false  statements  of  fact  of  and  concerning-  the  bank  of 
which  they  were  directors,  and  its  matters  of  business, 
and  which  related  to  its  solvency  and  reliability  ;  that 
such  statements  were  made  and  published  with  a 
knowledgfe  of  their  falsity,  and  with  an  intent  to  mis- 
lead and  deceive  the  public  and  the  defendant  in  error, 
and  that  the  statements  accomplished  or  served  the 
purpose  for  which  they  were  intended  ;  that  the  defend- 
ant in  error  was  thereby  induced  to  deposit  money  to 
a  larg-e  amount,  stated  in  the  petition,  in  the  said  bank, 
which  was  lost  by  reason  of  the  insolvency  and  failure 
of  the  said  bank.  The  commencement  of  the  action 
was  of  date  February  25,  1895.  On  March  29,  1895, 
the  plaintiff  in  error  and  his  co-defendant  filed  an  ap- 
plication or  petition  for  the  removal  of  the  cause  to  the 
United  States  circuit  court  for  the  district  of  Nebraska. 
Said  petition  was  accompanied  by  the  requisite  bond. 
On  April  1,  1895,  there  was  filed  in  the  state  court,  for 
the  plaintiff  in  error  and  each  of  his  co-defendants,  a 
demurrer  to  the  petition.  These  were  on  April  5, 
1895,  overruled,  and  the  application  for  removal  was 
denied. 

There  appears  in  the  record  the  following-,  as  setting- 
forth  what  was  done  in  the  cause  in  the  federal  court  : 


520  OFFICERS  [vol  I 

Stuart  V.  Bank  of  Staplehurst 

*'And  on  the  14th  day  of  October,  1895,  the  following- 
order  was  made  :  This  cause  having-  been  heard  on 
the  motion  of  the  plaintiff  to  remand  the  same  to  the 
state  district  court  in  and  for  Seward  county,  Nebraska, 
from  whence  it  came,  Messrs.  Pound  &  Burr  and 
Biggs  &  Thomas  appeared  for  the  plaintiff,  and  De- 
weese  &  Hall,  C.  O.  Whedon,  and  C.  C.  Flansburg 
for  the  defendants;  whereupon,  after  careful  consider- 
ation thereof,  and  being  fully  advised  in  the  premises, 
it  is  now  on  this  day  considered,  ordered,  and  adjudged 
by  the  court  that  said  motion  be,  and  the  same  is  hereby, 
overruled,  to  which  ruling  and  order  by  the  court  said 
plaintiff,  by  its  attorneys,  then  and  there  duly  excepted. 
And  on  the  8th  day  of  May,  1896,  the  following  further 
order  was  made  in  said  cause,  /.  e.  :  This  cause,  com- 
ing on  for  hearing-  on  the  motion  of  the  plaintiff  to  re- 
mand the  same  to  the  state  district  court  in  and  for 
Seward  county,  Nebraska,  from  whence  it  came,  was 
argued  and  submitted  to  the  court  b}'  attorne3^s  for  the 
respective  parties  ;  whereupon,  after  careful  consider- 
ation thereof,  and  being-  fully  advised  in  the  premises, 
it  is  now  on  this  day  ordered  and  adjudged  by  the  court 
that  said  motion  be,  and  the  same  is  hereby,  sustained, 
and  said  cause  is  remanded  to  the  said  district  court  in  and 
for  Seward  county,  Nebraska,  from  whence  it  came." 
Ma}'  6,  1895,  answers  were  filed  in  the  state  court  for 
all  parties  sued,  except  the  plaintiff  in  error.  July  9, 
1895,  and  during  the  pendency  of  a  term  of  the  state 
court,  a  judgment  by  default  was  rendered  therein 
against  the  plaintiff  in  error,  and  the  case  is  presented 
for  him  to  this  court  by  error  proceeding.  The  peti- 
tion in  error  is  as  follows  :  "(1)  The  petition  does  not 
state  facts  sufficient  to  constitute  a  cause  of  action 
against  this  plaintiff  and  in  favor  of  the  defendant  in 
error.  (2)  The  court  had  no  jurisdiction  to  render 
tsaid  judgment.  (3)  The  court  erred  in  overruling  the 
demurrer  of  this  plaintiff  to  said  petition.  (4)  The  court 
erred  in  exercising  jurisdiction  of  said  cause  after  the 
same  was  removed  to  the  circuit  court  of  the  United 
States    within    and    for  the    district  of  Nebraska.     (5j 


I 


B  CAS]  OFFICERS  521 

Stuart  V.  Bank  of  Staplehurst 

The  court  erred  in  rendering-  a  judgfment  by  default 
ag^ainst plaintiff  in  error  while  said  cause  was  pending- 
on  removal  proceedings  in  the  circuit  court  of  the 
United  States.  (6)  The  court  erred  in  assuming-  to 
determine  whether  said  cause  was  properly  removed 
under  the  acts  of  congress,  and  assuming  to  withdraw 
said  action  from  the  proper  circuit  court  of  the  United 
States. ' ' 

It  is  first  argued  for  plaintiff  in  error  that  the  juris- 
diction of  the  state  court  in  the  cause  ceased  as  soon  as 
the  application  for  removal  was  filed  ;  it  could  not 
further  proceed  therein  ;  and  its  subsequent 
acts  were  void.  In  section  2  of  the  act  of  ^1111!:;*^'^ ^'"' 
March  3,  1887,  as  corrected  in  1888  (see  25  J;f;;'/i!,t*i:»^'- 
Stat.  433),  amendatory  of  the  act  of  1875,  it 
is  provided  :  "That  any  suit  of  a  civil  nature,  at  law 
or  in  equity,  arising  under  the  constitution  or  laws  of 
the  United  States,  or  treaties  made,  or  which  shall  be 
made  under  their  authority  of  which  the  circuit  courts 
of  the  United  States  are  given  original  jurisdiction  by 
the  preceding  section,  which  may  now  be  pending-  or 
which  maj'  hereafter  be  brought  in  any  state  court,  ma}' 
be  removed  by  the  defendant  or  defendants  therein,  to 
the  circuit  court  of  the  United  States  for  the  proper 
district,"  etc.  The  act  further  provides  that  the 
application  shall  be  by  petition,  accompanied  by  a  bond, 
and  the  time  when  it  shall  be  filed  ;  and  when  it  has 
been  done,  "it  shall  then  be  the  duty  of  the  state  court 
to  accept  said  petition  and  bond  and  proceed  no  further 
in  such  suit."  25  Stat.  435,  §  3.  If  the  case  is  a 
removable  one,  and  the  petition  and  bond  are  filed,  the 
state  court  should,  as  stated  in  the  portion  of  the  statute 
we  have  quoted,- proceed  no  further  in  the  suit.  It  has 
no  jurisdiction  to  do  so,  and  it  is  probably  better,  in  all 
cases  where  the  petition  for  removal,  accompanied  by 
the  bond,  has  been  presented,  especially  if  the  right  of 
removal  is  questionable  or  doubtful,  to  await  in  the  state 
court  the  action  of  the  United  States  court  on  the  point 
of  the  removability  of  the  suit.  An  examination  of  the 
authorities  discloses  much  confusion  and  conflict  on  the 


522  OFFICERS  [vol  I 

Stuart  V.  Bank  of  Staplehiirst 

subject  now  under  discussion,  but  it  may  be  said 
that  if  the  cause  for  removal  exists,  and  is  disclosed  by 
the  record,  if  the  application  is  made,  if  the  proper 
papers  are  filed,  the  jurisdiction  of  the  state  court  ceases 
without  and  despite  any  choice  or  act  on  its  part.  It 
may  also  be  stated  that  if  the  cause  is  in  fact  not  a 
removable  one,  and  that  it  is  not  appears  on  the  face  of 
the  record,  or  is  disclosed  by  the  papers,  the  case  is  not 
removed,  and  the  state  court  does  not  lose,  but  retains, 
its  jurisdiction,  and  action  therein,  even  during  the  time 
a  transcript  is  on  file  in  the  United  States  court,  ma}' 
be  g"ood,  and  ultimately  prevail. 

We  have  no  doubt  that  in  all  cases  the  better  course 
is  to  suspend  proceedings  in  the  state  court  until  the 
court  of  removal  has  acted  on  the  matter  on  a  motion  to 
j^  ^  remand  ;  but,  as  we  have  just  stated,    there 

may  be  cases  wherein  the  records  disclose 
their  non-removable  character,  and  in  any  such  the  state 
court  retains  jurisdiction,  notwithstanding  the  removal 
proceedings.  Dill.  Rem.  Causes  (5th  Ed.)  ^  143  : 
Tennessee  v.  Union  &  Planters'  Bank,  152  U.  S.  454. 

14  Sup.  Ct.  654  :  Walker  v.  Collins,  167  U.  S.  57,  17 
Sup.  Ct.  738  ;  Chappell  v.  Waterworth,  155  U.  S.  102. 

15  Sup.  Ct.  34;  Blair  v.  Manufacturing  Co.,  7  Neb. 
146,  and  cases  cited  ;  Water  Co.  v.  Keyes,  96  U.  S. 
199  ;  Railway  Co.  v.  Dunn,  123  U.  S.  513,  7  Sup.  Ct. 
1262  ;  Stone  v.  South  Carolina,  117  U.  S.  430,  6  Sup. 
Ct.  799;  Carson  :•.  Hyatt,  118  U.  S.  279,  6  Sup.  Ct. 
1050.  An  examination  of  the  petition  herein  convinces 
us  that  it  did  not  declare  on  any  cause  of  action  con- 
ferred by  statute  or  United  States  law.  It  was  not  to 
enforce  a  liability  arising  solely  by  reason  of  the 
violation  of  any  provision  of  the  national  banking  law. 
There  was  in  the  petition  a  direct  statement  of  an  action 
for  false  representations,  or,  more  properly  and  gener- 
ally stated,  for  deceit.  Some  of  the  acts  declared  upon 
may  have  been  violations  of  the  national  banking  act. 
but  they  were  not  relied  upon  as  such,  nor  was  a  remedy 
sought  under  said  act.  The  petition  for  removal  did 
not,  in  its  statements  of  facts,  present  any  stronger 
reason  or  cause  for  removal  than   was  disclosed  by  the 


B  CAS]  OFFICERS  523 

Stuart  V.  Bank  of  Staplehurst 

orig"inal  petition  in  the  action.  There  were  some 
conclusions  averred  in  it,  but  these  did  not  strengthen 
it  beyond  its  statements  of  facts. 

The  acts  which  constitute  the  basis  for  an  action  sim- 
ilar to  the  one  at  bar  may  be  within  or  without  the  duties 
of  officers  or  directors  of  a  national  bank,  and 
they  may  be  violative  or  not  of  the  duties  of  Faisrstat*mpn7s- 
the  parties  sued,  as   directors    of  a  national  re??orsLRenif'difs 
bank,  and  the  acts  may  furnish  cause  for  a 
common-law    action  of   deceit.     Prescott  i\    Haug-he}-, 
65  Fed.  653  ;  Gerner  v.  Thompson,  74  Fed.  125  ;  Bank 
f.  Thoms,    28  Wkly.  Law  Bui.  164  ;   Bartholomew  :•. 
Bentley,  15  Ohio,   660  ;  Mor.  Priv.  Corp.  §  573.     And 
any  action  which  might  accrue  by  reason  of 
the  same    acts  under  the   national    banking     w-same'r 
law  would  not  be  exclusive  of  another  action 
and    would  not  exclude  the  one  of  deceit.     Prescott  v. 
Haughey,    supra.     It  seems    clear  that  the 
record  disclosed  on  its  face  that  the  case  was     ne^Jihigf""'" 
not  one  which    could  be  removed,    and  that 
the  state  court  did  not  lose  its  jurisdiction. 

Another  point  of  argument  is  that,  in  an  action  of 
deceit,  it  must  appear  that  the  representations  alleged 
in  the  complaint  were  made  directly  to  the  complainant. 
We  do  not  think  this  is  tenable.     The  rep- 

.  ,.  ^        £  J.1  II  Same— Siime. 

resentations  being  made  tor  the  w^hole  or 
any  of  the  public,  if  seen,  and  relied  and  acted  upon,  by 
any  person,  and  damages  result,  the  right  of  action 
arises.  Bank  v.  Thoms,  supra;  Prewitt  v.  Trimble, 
92  Ky.  176,  17  S.  W.  356;  Tate  v.  Bates,  118  N.  C. 
287,  24  S.  E.  482-;  Graves  v.  Bank,  10  Bush,  23;  Seale 
V.  Baker,  70  Tex.  283,  7  S.  W.  742;  Peek  v.  Gurnev, 
8  Moak,  Eng.  R.  1;  Westervelt  v.  Demarest,  46  N.  J. 
Law  37. 

It  is  also  contended  that  the  petition  was  defective  in 
its  joinder  of  the  parties  defendant  in  an  action  of 
deceit.  The  petition  charged  joint  actions  of  the 
defendants,  and  the  acts  were  such  as  might 
be  done  in  combination;  hence  it  was  not  /otnlt'err"''" 
open  to  attack  by  demurrer  for  an  improper 
joinder  of  parties.     Pom.  Rem.  &  Rem.  Rights,  §§  281, 


524  OFFICERS  [vol  I 

Cooper  V.  Hill 

307:  Stiles  v.  White,  11  Mete.  (Mass.)  356;  White  v. 
Sawyer,  16  Gray,  586;  Machine  Co.  v.  Keifer,  134  111. 
481.  25  N.  E.  799;  Railroad  Co.  v.  Ross,  142  111.  9,  31 
N.  K.  412;  City  of  Chicag-o  r.  Babcock,  143  111,  358, 
32  N.  K.  271.  This  disposes  of  all  the  questions  arg-ued 
which  were  raised  by  the  assig^nments  in  the  petition 
in  error.     There  was  another  point  presented,   but  it 

was  not  assig-ned  for  error  in  the  petition, 
kS"*^'"        hence    need    not    be    considered.     Post    :■. 

Olmsted,  47  Neb.  893,  66  N.  W.  828.  "  It 
follows  that  the  judg-ment  of  the  district  court  will  be 
affirmed.     Affirmed. 

NOTES. 

National   Banks — Action  against   Directors  for  False  Reports. — A 

private  individual  may  maintain  a  common-lavs^  action  in  the  nature 
uf  an  action  of  deceit  against  the  directors  of  a  national  bank  for 
damages  caused  by  the  making-  of  false  reports  in  contravention  of 
the  national  banking-  act.  Gerner  z'.  Thompson  (C.  C),  74  Fed. 
Rep.  125.  The  liability  of  the  directors  to  such  an  action  is  not 
precluded  bv  the  Habilitv  imposed  by  the  act.  Prescott  v.  Haughey 
(C.  C),  65  Fed.  Rep.  653". 

Same — Same— Jurisdiction. — In  Bailey  v.  Mosher,  74  Fed.  Rep. 
15,  it  was  held  that  an  action  brought  against  the  directors  of  a 
national  bank,  for  damages  for  loss  through  the  insolvency  of  the 
bank  of  money  loaned  it  upon  false  representations  contained  in  a 
report  of  the  directors  made  in  accordance  with  the  statutes  and  the 
rules  of  the  comptroller  of  currency',  did  not  arise  under  the  federal 
constitution  or  statutes,  and  was  not  under  the  jurisdiction  of  the 
federal  courts  originally,  nor  by  removal,  being  between  citizens  of 
the  same  state. 


Cooper  ct  aL 

V. 

Hill. 

{Circuit  Court  of  Appeals,  Eighth  Circuit,  May  9,  iSqg.) 

National    Banks— Power  to    Repair    Property   for  Sale.— Where  a 

national  bank  has  lawfully  acquired  property,  it  may,  in  order  to 
sell  it.  make  reasonable  repairs  upon  it. 

Same — Ultra  Vires.— It  is  ultra  vires  of  a  national  bank  to  expend 
its  money  in  prospecting  for  ore  on  its  property. 

Same — Same— Liability  of  Directors. — The  directors  of  a  national 


B  CAS]  OFFICERS  525 

Cooper  I'.  Hill 

bank  become  personally  liable  to  the  bank,  or  its  receiver,  for  losses 
caused  by  their  use  of  its  funds  for  unauthorized  purposes. 

Equity  Jurisdiction.  — Equity  has  jurisdiction  of  a  suit  ag-ainst  the 
officers  of  a  bank  to  compel  restoration  of  money  unlawfully  divested 
by  them  from  the  funds  of  the  bank,  involving-  an  accounting  of  such 
money  between  the  bank's  receiver  and  such  officers,  it  being-  a  suit 
to  compel  the  execution  of  a  trust. 

Liability  of  Directors — Parties. — When  a  loss  has  been  caused  by 
the  misappropriation  of  the  funds  of  a  national  bank,  its  officers, 
chargeable  with  the  fault  occasioning  the  loss  are  all  jointly  and 
separately  liable  for  the  entire  amount  divested. 

Pleading  and  Proof. — When  the  ultimate  facts  requisite  to  entitle 
complainant  to  the  relief  he  prays  are  pleaded  and  proved,  he  cannot 
be  defeated  because  he  also  pleaded  other  facts  not  essential  to  his 
recovery. 

Misappropriation  of  Funds — Interest. — It  is  a  general  rule,  both 
at  law  and  in  equity,  that,  whenever  one  has  wrongfully  detained 
or  misappropriated  the  moneys  of  another,  he  must  pay  interest  at 
the  legal  rate  from  the  date  of  the  wrong-. 

Officers  as  Trustees  —  Limitations  —  Laches.* — The  officex-s  of  a 
national  bank  are  not  the  trustees  of  an  express,  but  of  an  implied, 
trust  for  the  bank  and  its  stockholders  and  creditors,  and  statutes 
of  limitation  and  the  doctrine  of  laches  may  be  invoked  in  their 
defense. 

Laches. — The  misappropriation  of  the  funds  of  the  bank  by  its 
officers  appeared  on  the  books,  and  was  known  to  its  cashier,  who 
had  no  interest  in  the  matter  adverse  to  the  bank,  as  early  as  Au- 
gust, 1889.  The  bank  continued  in  business  until  shortl}-  before  its 
receiver  was  appointed  in  1894.  No  complaint  of  such  acts  of  the 
officers  was  made  until  after  the  failure  of  the  bank,  and  no  suit 
was  instituted  until  October  25,  1895.  Held,  that  there  was  no  rea- 
son to  suspend  the  application  of  the  doctrine  of  laches  at  the  end 
of  six  years  after  the  cause  of  action  accrued  when  the  state  statute 
barred  the  analog-ous  action  at  law  at  such  time. 

Appeal  from  the  Circuit  Court  of  the  United  States 
for  the  District  of  Colorado, 

This  is  an  appeal  from  a  decree  for  the  payment  of 
the  sum  of  $35,093.45,  interest  thereon,  and  costs,  by 
John  J.  Reithmann,  Georg-e  Tritch,  Job  A.  Cooper,  D. 
C.  Dodg-e,  and  John  Good,  to  the  appellee, 
eph.  1.  Hill,  as  receiver  ot  the  German 
National  Bank  of  Denver,  on  account  of  the  misappro- 
priation of  the  funds  of  that  bank  in  1888  and  1889.  All 
the  parties  against  whom  this  decree  was  rendered  have 
appealed  to  this  court  except  Reithmann,  who  appears 
to  be  content  with  the  result  below.  The  decree  rests 
upon  this  state  of   facts:     In   the  years  1888  and  1889 

*See  note  at  end  of  case. 


526  OFFICERS  [vol  I 

Cooper  V.  Hill 

Reitlimann,  Tritch,  Cooper,  Dodge,  and  Good  were 
directors  of  the  bank.  Tritch  was  its  president,  and 
Cooper  was  its  cashier.  The  bank  had  acquired  the 
ownership  of  certain  minino-  claims  under  an  execution 
sale  upon  a  judg-ment  in  its  favor  of  about  S4,500,  and 
by  virtue  of  certain  conveyances  which  it  had  procured 
to  be  made  to  Cooper,  its  cashier,  in  an  endeavor  to 
collect  its  judg-ment.  The  legal  title  to  this  property 
was  in  Cooper,  but  he  held  it  for  the  benefit  of  the 
bank.  Upon  the  property  was  some  mining  machinery. 
A  shaft  had  been  sunk  upon  it  more  than  100  feet,  and 
some  drifts  had  been  made  from  this  shaft  in  an  endeavor 
to  discover  and  mine  ore.  But  the  former  owners  had 
abandoned  the  undertaking,  the  machinery  was  still, 
and  the  shaft  and  drifts  were  full  of  water.  In  Feb- 
ruary, 1888,  the  five  directors  of  this  bank  against 
whom  the  decree  below  was  rendered  caused  a  corpora- 
tion called  the  Cassandra  Consolidated  Mining  Com- 
pany to  be  organized  for  the  purpose  of  acquiring, 
developing,  and  operating  mines.  They  had  the  cer- 
tificates of  all  the  stock  of  this  corporation,  except  a  few 
qualif3'ing  shares  which  were  written  to  its  officers, 
written  to  themselves,  on  July  11,  1888,  but  they  never 
took  them  out  of  the  stock  book  of  the  compan}^  On 
July  12,  1888,  Cooper  made  a  deed  of  the  mining  prop- 
erty which  he  held  for  the  bank  to  the  Cassandra 
Compan3\  The  latter  company  procured  money  from 
the  bank,  and  used  it  to  pump  water  out  of  the  mine, 
to  sink  the  shaft  deeper,  and  to  prospect  for  ore, 
between  February  1,  18S8,  and  April  11,  1889,  until  it 
had  used,  in  all,  $20,864.82  of  the  funds  of  the  bank. 
Upon  the  books  of  the  bank  this  money,  with  the  usual 
interest,  was  charged  as  an  overdraft  against  the 
Cassandra  Company.  In  June,  1888,  this  overdraft 
had  become  56,800,  and  each  of  these  five  directors 
deposited  81,200  in  the  bank  to  the  credit  of  the  Cas- 
sandra Company,  and  thus  diminished  its  apparent  over- 
draft by  the  sum  of  56,000.  On  October  26,  1889,  this 
mining  property  had  become  worthless;  and  the  board 
of  directors  on  that  day  passed  a  resolution  to  the  effect 


B  CAS]  OFFICERS  527 

Cooper  v.  Hill 

that  it  should  be  reconveyed  to  the  bank,  that  the  bank 
should  refund  to  the  five  members  of  the  board  the 
$6,000  which  they  had  deposited  to  the  credit  of  the 
Cassandra  Company,  and  that  the  bank  should  assume 
that  company's  overdraft.  Pursuant  to  this  resolution, 
Cooper,  who  claimed  that  his  deed  to  the  Cassandra 
Company  had  never  been  delivered,  althouofh  it  appeared 
upon  the  records  of  the  county,  made  a  deed  of  this  prop- 
erty to  John  J.  Reithmann,  who  had  then  acquired  a 
controlling-  interest  in  the  bank,  for  the  benefit  of  the 
bank;  and  in  December,  1889,  the  bank  paid  back  to  each 
of  the  five  directors  the  $1,200  which  he  had  deposited 
with  the  bank  for  the  Cassandra  Company  in  June  or 
July,  1888.  During-  all  the  time  when  these  transac- 
tions were  going-  on  the  bank  was  solvent  and  pros- 
perous, and  the  appellants  owned  a  majority  of  its 
stock,  and  controlled  and  manag-ed  it.  The  stock  was 
selling-  in  October,  1889,  when  the  resolution  to  return 
this  mining-  property  to  the  bank  was  passed,  at  the 
rate  of  S325  for  a  share,  which  was  of  the  par  value  of 
$100.  About  this  time  the  appellants  sold  their  stock 
in  the  bank,  and  the  control  and  manag-ement  of  it  was 
turned  over  to  Reithmann  and  his  friends.  On  July  6, 
1894,  the  bank  became  insolvent,  and  the  appellee.  Hill, 
was  appointed  its  receiver.  This  suit  was  commenced 
by  this  receiver  on  October  25,  1895.  In  his  bill  he 
alleg-ed  the  facts  we  have  stated,  averred  that  the 
moneys  of  the  bank  used  throug-h  the  Cassandra 
Company  were  misappropriated  and  lost  by  the  five 
directors  in  a  futile  attempt  to  develop  and  explore 
this  mining-  property,  and  that  this  was  done  by  them 
for  their  own  benefit,  and  for  the  purpose  of  specula- 
tion. He  alleg-ed  that  the  Cassandra  Company  was 
org-anized  and  owned  by  the  five  directors,  that  they 
caused  the  mining-  property  to  be  conveyed  to  it,  and 
that  they  intended  to  take  the  benefit  of  any  advance 
in  its  value  if  paying-  ore  was  discovered  and  meant 
to  charg-e  the  bank  with  any  loss  they  sustained  if 
their  speculation  was  unfortunate.  He  alleg-ed  that 
their  speculation    was    disastrous,    and  in    pursuance 


528  OFFICERS  [vol  I 

Cooper  V.  Hill 

of  their  intention  they  charg-ed  the  bank  with  their 
loss,  and  escaped  without  harm.  The  appellants 
answered  that  the  mining-  property  was  at  all  times 
owned  by  the  bank,  that  the  Cassandra  Compau}' 
was  orofanized  and  operated  by  them  in  the  interest  of 
the  bank,  that  the  purpose  of  its  org-anization  was  to 
form  a  conduit  throug-h  which  the  mining*  property 
mig-ht  be  conveyed  to  a  purchaser,  and  that  this  was 
done  because  they  thoug"ht  that  the  bank  could  realize 
more  by  a  sale  of  the  stock  of  the  Cassandra  Company 
as  the  owner  of  the  mining*  property  than  it  could  b}' 
a  direct  sale  of  the  property  as  the  property  of  the  bank. 
They  alleg-edthat  in  1888  the  mine  was  full  of  water,  so 
that  it  could  not  be  examined  b}^  a  purchaser  or  sold  : 
that  they  authorized  the  expenditure  of  the  money  used 
throug-h  the  Cassandra  Company  for  the  purpose  of 
pumping"  out  the  water,  clearing-  out  the  shaft  and 
drifts,  and  putting-  the  property  in  presentable  shape 
for  examination,  in  the  hope  and  belief  tha.t  in  that  wa}^ 
they  mig-ht  secure  a  purchaser  of  it  for  the  bank. 
They  averred  that  they  advanced  the  $6,000  which  the}- 
deposited  to  the  credit  of  the  Cassandra  Company  in 
the  summer  of  1888  to  the  bank,  as  an  accommodation 
to  it,  for  the  purpose  of  reducing-  the  apparent  over- 
draft of  the  Cassandra  Company.  It  appeared  at  the 
trial  that  there  were  seven  directors  of  this  bank  ;  that 
one  Clinton,  who  prior  to  that  time  was  the  assistant 
cashier,  succeeded  Cooper  as  cashier  of  the  bank  in 
August,  1889,  and  held  that  office  until  September. 
1893  ;  that  Cooper  ceased  to  be  a  director  of  the  bank 
on  July  1,  1890  ;  that  Tritch  ceased  to  be  a  member  of 
the  directory  at  the  annual  meeting-  in  January,  1890  : 
and  that  Dodg-e  ceased  to  be  a  member  on  January  12, 
1892.  No  complaint  of  the  acts  of  the  appellants  was 
ever  made  until  after  the  bank  became  insolvent  under 
the  manag-ement  of  their  successors,  nor  until  after  a 
receiver  was  appointed  for  it  in  the  year  1894.  Upon 
this  state  of  facts  a  decree  was  rendered  in  the  court 
below  against  the  five  directors  for  the  entire  amount 
of  money  expended  upon   this    mining-  property  during- 


B  CAS]  OFFICERS  529. 

Cooper  II.  Hill 

the  years  1888  and  1889,  with    interest  from  December 
23d  in  the  latter  year. 

Charles  J.  Hiig'hes,  Jr.,  for  appellants. 
John  S.  Macbeth,  for  appellee. 

Before  Cai^dwell,  Sanborn,  and  Thayer,  Circuit 
Judgfes. 

Sanborn,  Circuit  Judg-e,  after  stating-  the  facts  as. 
above,  delivered  the  opinion  of  the  court. 

The  bill  in  this  suit  contains  averments  sufficient  to- 
warrant  a  recovery  on  the  g-round  of  an  unauthorized 
use  of  the  funds  of  the  bank  to  prospect  for  and 
to  develop  a  mine  on  its  property,  and  also  on  the 
g-round  of  a  willful  misappropriation  of  its  funds  for 
the  use  and  benefit  of  the  appellants.  We  dismiss  the 
latter  g-round  on  the  threshold  of  this  discussion, 
because  the  evidence  fails  to  satisfy  us  that  any  of  the 
appellants  ever  intended  to  obtain  any  pecuniar}' 
advantag-e  or  to  make  any  personal  g-ain  out  of  the- 
transactions  under  consideration  at  the  expense  of  the 
bank,  and  because,  if  they  did,  a  suit  ag-ainst  them  for 
such  a  fraud  was  barred  in  three  j^ears  from  December 
23,  1889,  and  this  suit  \vas  not  commenced  until 
October  25,  1895.  Mills'  Ann.  St.  Colo.  §S  2911. 
2909.  The  contention  of  the  appellee  that  the  cause 
of  action  for  fraud  is  not  barred  by  this  statute, 
because  the  time  under  it  does  not  commence  to  run 
until  the  discovery  of  the  facts  constituting-  the  fraud, 
has  been  considered.  But  the  salient  facts  of  this  case 
were  spread  upon  the  books  of  the  bank.  They  were 
all  known  in  October,  1889,  to  the  cashier,  Clinton, 
who  succeeded  Cooper  when  he  made  the  record  of  the 
resolution  for  the  reconveyance  of  the  mining-  prop- 
erty ;  and  Clinton  had  no  interest  in  this  matter 
adverse  to  the  bank,  and  he  was  its  chief  officer  and 
ag-ent.  Notice  to  him  w^as  notice  to  his  principal,  the 
bank.  There  was  no  concealment,  no  secrecy,  no 
deceit,  in  the  acts  of  the  appellant  ;  and  the  time,  under 
this  section  of  the    statute,    commenced  to  run   when. 

B  CAS — 34 


530  OFFICERS  [vol  I 

Cooper  V.  Hill 

the  diversion  of  the  fund  was  complete.  In  this  state 
of  the  facts  the  receiver  and  the  creditors  and  stock- 
holders of  the  bank,  whom  he  represents,  stand  in  its 
shoes.  Their  rig-hts  here  are  merely  those  of  assig^nees 
of  the  bank,  and  as  such  they  have  acquired  no  cause  of 
action  which  the  bank  did  not  have  before  the  receiver 
was  appointed. 

The  record  discloses  a  case  in  which  the  president, 
the  cashier,  and  the  majority  of  the  directors  of  a  bank 
commenced  to  jexpend  money  upon  an  abandoned  rain- 
ing- property  which  it  owned  for  the  purpose  of 
preparing  it  for  sale,  in  order  that  the  bank  might  dis- 
pose of  it  and  convert  it  into  money.  The  shaft  and 
the  drifts  upon  the  property  were  full  of  water.  The 
machinery  had  been  silent  for  months.  The  tools  had 
been  stolen,  and  others  were  necessary  to  place  the 
machinery  in  successful  operation.  When 
ivationai  Banks-    a  national  bank  has    lawfully  acquired  real 

rower  te  Repair  ,  i.  "i^  11    j.U     4- 

i-roperij  for  Sale,  estate  or  other  property,  it  may  sell  that 
property  and  convert  it  into  money;  and,  in 
order  to  do  so,  it  may  clean  it,  make  reasonable  repairs 
upon  it,  and  put  it  in  presentable  condition  to  attract 
purchasers,  in  the  same  wa}^  that  an  individual  of  sound 
judgment  and  prudence  would  do  if  he  desired  to  make 
a  sale  of  the  property.  The  authority  to  do  these 
thing's  is  one  of  the  incidental  powers  vested  in  the 
corporation  under  section  5136  of  the  Revised  Statutes, 
which  provides  that  a  national  bank  shall  have  author- 
ity : 

"Seventh.  To  exercise  by  its  board  of  directors,  or 
duly  authorized  officers  or  ag-ents,  subject  to  law,  all 
such  incidental  powers  as  shall  be  necessary  to  carry 
on  the  business  of  banking-  by  discounting  and  nego- 
tiating- promissory  notes,  drafts,  bills  of  exchang-e  and 
other  evidences  of  debt ;  by  receiving-  deposits  ;  by 
buying  and  selling  exchange,  coin  and  bullion;  by 
loaning-  money  on  personal  securit}^  ;  and  by  obtaining, 
issuing-  and  circulating-  notes  according  to  the  pro- 
visions of  this  title." 

The  duty  of  .exercising-  this  power  is  imposed  upon 


B  CAS]  OFFICERS  531 

Cooper  V.  Hill 

the  directors  and  officers  of  such  a  bank,  and  the  au- 
thority to  determine  in  the  first  instance  when  and  to 
what  extent  it  shall  be  exercised  is  necessarily  intrusted 
to  their  judg-ment.  Moreover,  they  cannot  escape  the 
discharge  of  this  duty.  They  are  bound  to  consider 
and  decide  the  question  at  their  peril.  It  follows  that, 
when  they  have  honestly  and  carefully  considered 
and  decided  it,  they  ou^fht  not  to  suffer  because,  in  the 
lig-ht  of  subsequent  events,  which  could  not  be  fore- 
seen, it  turns  out  that  their  decision  was  unfortunate. 
This  mining-  property  was  unsalable  with  the  shaft 
and  drifts  filled  with  water,  the  machinery  silent,  and 
the  tools  g-one.  It  is  common  knowledge  that  a  mine 
or  a  prospect  for  a  mine  is  much  more  likely  to  find  a 
purchaser,  and  much  more  likely  to  realize  a  fair  price, 
when  work  is  in  active  prog-ress  upon  it,  than  when  it 
is  still  and  desolate.  The  officers  of  this  bank  decided 
to  pump  the  water  out  of  the  shaft  and  drifts  of  this 
property,  to  put  it  in  condition  in  which  it  could  be 
examined  by  a  purchaser,  to  start  the  machinery,  and 
to  do  all  this  in  the  hope  that  by  so  doing-  they  mig^ht 
find  a  purchaser  for  property  that  was  unproductive 
and  worthless  in  its  then  condition.  An  examination 
of  the  evidence  discloses  the  fact-  that  the  necessarv 
expense  of  placing  this  property  in  condition  for  exam- 
ination and  sale  was  at  least  $1,000,  and  perhaps  $2,000. 
The  directors  failed  to  find  a  purchaser  for  the  prop- 
erty, and  the  bank  lost  this  money.  But  in  view  of 
the  fact  that  the  manag-ement  and  sale  of  the  property 
was  intrusted  to  their  discretion,  and  that  the 
burden  of  deciding-  whether  or  not  this  expendi- 
ture should  be  made  was  imposed  upon  them,  we 
are  unwilling  to  say  that  their  action  in  expend- 
ing $2,000  for  this  purpose  was  either  unauthorized, 
wrongful,  or  culpably  negligent.  We  are  of  the 
opinion  that  an  expenditure  of  this  amount  may  be  said 
to  have  been  properly  made  in  the  honest  exercise  of  a 
discretion  vested  in  them,  and  that  they  oug-ht  not  to 
be  personally  liable  because  the  use  of  this  money  did 
not  secure  the  purchaser  they  sought  and  expected  to 
obtain.     The  unfortunate  part  of  this  case  is  that  they 


532  OFFICERS  [vol  I 

Cooper  V.  Hill 

did  not  stop  here.  When  the  shaft  had  been  cleared  of 
water  and  the  machinery  had  been  put  in  operation, 
when  the  property  was  in  proper  condition  for  exami- 
nation and  for  sale,  and  when  no  purchaser  was  found, 
they  proceeded  to  expend  $18,864.82  more  in  prospecting- 
for  paying"  ore  upon  property  in  which  none  has  ever 
been  discovered.  It  was  not  only  beyond 
iiJesr'^"'^''  their  authority  as  officers  of  the  bank,  but 
ultra  vires  of  the  bank  itself,  to  carry  on 
ordinary  mining-,  manufacturing-,  or  trading-  business, — 
much  more,  to  expend  its  monej^  in  such  a  speculative 
venture  as  prospecting- for  ore  where  none  of  value  ever 
had  been  found.  The  statutes  of  the  United  States  are 
the  measure  of  the  powers  of  national  banks,  and  these 
corporations  can  lawfully  exercise  none  but  those  there 
expressly  g-ranted,  and  those  fairly  incidental  thereto. 
Omaha  Bridg-e  Cases,  10  U.  S.  App.  98,  174,  2C.  C.  A. 
174,  230,  and  51  Fed.  309,  316  ;  Bank  r'.  Towmsend,  139 
U.  S.  67,  73,  11  Sup.  Ct.  496  ;  Bank  v.  Kennedy.  167 
U.  S.  362,  366,  17  Sup.  Ct.  831  ;  Bank  v.  Smith's 
Ex'r  40  U.  S.  App.  690,  704,  23  C.  C.  A.  80. 
87,  and  77  Fed.  129,  137.  The  officers  of  these  banks 
are  bound  to  know  they  are  charg-ed  by  the  law  with 
the  knowledg-e  of  the  extent  and  limitations  of  the 
powers  of  the  corporations  for  which  they  act,  and  of 
their  own  authority  as  the  ag-ents  of  these  corporations. 
It  is  said  that  they  are  not  technically  trustees  of  ex- 
press trusts,  but  they  are  the  ag-ents  of  the  bank, 
charg-ed,  under  the  national  banking-  laws,  with  an 
implied  trust  to  use  the  funds  of  the  bank  for  the  pur- 
poses specified  in  these  laws,  only,  and  to  preserve 
them  for  their  creditors  and  stockholders.  Kver}' 
ag-ent  incurs  a  personal  liability  to  his  principal  for 
losses  occasioned  by  his  unauthorized  acts  under  the 
g-eneral  law,  and  the  officers  of  corporations  are  no 
exception  to  the  rule.  Upon  this  principle  the  direct- 
ors and  the  other  officers  of  a  national  bank 
Same-Same-       becomc  personally  liable  to  the  bank  and  its 

Liability  of  •       •     j.     "      j.     -j.  •  r         i 

itirectors.  successor  iH  interest,  its  receiver,  lor  losses 

caused  by  their   use  of  its    funds   for  unau- 
thorized purposes,  as  well  as  for   culpable   neg"lig-ence 


B  CAS]  OFFICERS  533 

Cooper  v.  Hill 

in  their  use  and  for  their  fraudulent  appropriation. 
Williams  f.  McKav,  40  N.  J.  Eq.  189,  200  ;  Mor.  Coro. 
^i^  555,  556;   Bank  f.  Wilcox,  60  Cal.  126,  141. 

It  is  insisted,  however,  that  there  can  bs  no  recovery 
of  the  appellants  in  this  suit  on  account  of  the  diver- 
sion of  the  funds  of  this  bank  to  the  business  of  pro- 
spectintf  for  ore  upon  its  property  (1)  because  there  is 
a  complete  remedy  for  the  appellee  at  law,  and  there- 
fore there  is  no  jurisdiction  of  this  suit  in  equity  ; 
(2)  because  the  liability  of  the  appellants  is  several,  and 
not  joint  ;  (3)  because  the  appellee  pleaded  that  the 
appellants  fraudulently  misappropriated  this  money  for 
their  own  benefit;  and  (4)  because  the  suit  is  barred  by 
the  statute  of  limitations  and  by  laches.  We  will  con- 
sider these  objections  in  their  order. 

1.  This  is  a  suit  to  compel  the  restoration  to  a  trust 
fund  of  $20,864.82  which  the  appellants  unlawfull}^ 
diverted  from  that  fund,  and  it  involves  an  accounting- 
of  the  money  diverted  between  the  receiver  and  the 
appellants.     It    is   therefore  a   suit  against 

officers  of  a  bank  to  execute  a  trust  and  to  fjln.'' ''"''''*'''''" 
compel  an  accounting,  and  it  avoids  a  multi- 
plicity of  suits  at  law.  This  court  has  repeatedly 
held,  for  reasons  which  now  seem  to  us  obvious,  and 
which  are  stated  at  length  in  our  opinions,  that  equity 
has  jurisdiction  of  such  a  suit.  Hayden  :'.  Thompson. 
36  U.  S.  App.  362,  367,  17  C.  C.  A.  592,  594,  and  71 
Fed.  60,  62  ;  Cockrill  v.  Cooper,  57  U.  S.  App.  576, 
29  C.  C.  A.  529,  535,  538,  and  86  Fed.  7,  12,  16. 

2.  Are  the  appellants  jointly  liable  for  the  misappro- 
priation ?  All  the  appellants  knew  of  the  misappro- 
priation while  this  diversion  was  g'oing-  on.  Some  of 
them  directed,  and  all  of  them  consented  to,  it.  No 
objection  or   protest  or  endeavor  to  prevent 

or  stop  it    was    made   by  any   of  them,  and,      i.ui'iiity«r 
when  the  amount  used  reached  $6,800,  each     pirties" 
of  them  contributed  $1,200  to  replace  a  por- 
tion of  the  misappropriated   money,  and   subsequently- 
reimbursed    himself    for    this  contribution    out    of  the 
funds  of  the  bank.     £^ach  of  these  officers  was  there- 


534  OFFICERS  [vol  I 

Cooper  V.  Hill 

fore  at  fault,  and  hence  liable  for  the  entire  amount 
diverted.  When  a  loss  has  been  caused  by  the  appro- 
priation of  the  funds  of  a  corporation  to  a  purpose  un- 
authorized by  its  charter,  or  by  culpable  neg-lig-ence,  or 
by  a  conversion  of  its  funds,  all  the  officers  of  the  cor- 
poration who  are  chargeable  with  the  fault  which  has 
occasioned  the  loss  are  liable  for  the  entire  misappro- 
priation, without  regard  to  the  degree  of  dereliction  of 
which  each  is  guilty.  2  Lewin,  Trusts,  p.  1220  ; 
Williams  V.  McKay,"'46  N.  J.  Kq.  2,5,  39,  18  Atl.  824. 
The  appellants  cannot  escape  here  on  the  ground  that 
each  is  separately  liable  for  the  amount  which  he  mis- 
appropriated only,  because  they  are  all  both  jointl}- 
and  separateh^  liable  for  the  entire  amount  diverted. 
3.  Must  the  decree  be  reversed  because  the  appellee 
pleaded  that  the  diversion  was  made  with  a  fraudulent 
intent?  The  facts  set  forth  in  the  bill  are  ample  to 
warrant  a  recovery  for  the  unauthorized  use  and  loss 
by  the  appellants  of  the  money  in  question 
neartins  and  jj^  ^|^g  busiucss  of  prospecting  for  ore  on  the 
property  of  the  bank,  and  these  facts  have 
been  proved.  But  the  bill  contains  other  allegations  to 
the  effect  that  the  appellants  used  and  lost  this  money 
fraudulently,  with  the  intent  to  get  gain  for  themselves 
by  causing  the  property  on  which  it  was  expended  to 
be  conveyed  to  the  Cassandra  Company  for  the  purpose 
of  subsequently  selling  it  at  a  profit  for  their  individ- 
ual benefit  if  paying  ore  was  discovered,  while  they 
meant  to  saddle  the  loss  upon  the  bank  if  the  specula- 
tion proved  disastrous.  The  appellee  failed  to  prove 
these  averments  of  fraud,  and  it  is  contended  that  this 
failure  is  fatal  to  a  recovery  on  any  ground  under  this 
bill.  But  the  gravamen  of  the  bill  was  the  wrongful 
diversion  of  the  trust  fund.  If  the  cause  of  action 
for  the  fraudulent  diversion  of  the  fund  to  the 
purpose  of  prospecting  on  this  mining  property 
for  their  own  benefit  were  inconsistent  with  the 
cause  of  action  for  its  diversion  for  the  unauthorized 
purpose  of  prospecting  upon  it  for  the  benefit  of 
the  bank,    this  objection  of  the   appellants    might    be 


B  CAS]  OFFICERS  535 

Cooper  V.  Hill 

worthy  of  consideration.  But  there  is  no  inconsist- 
ency between  these  two  causes  of  action  as  they  are 
stated  in  the  bill.  On  the  other  hand,  the  latter  cause 
necessarily  inheres  in  the  former,  and  warrants  the 
same  relief.  The  effect  of  the  bill  is  to  plead  the  un- 
lawful diversion  of  the  fund  by  the  appellants,  and 
then  to  plead  that  it  was  diverted  with  a  fraudulent 
intent.  If  the  fund  was  diverted  to  the  unauthorized 
purpose,  the  cause  of  action  was  complete,  whether 
the  officers  intended  to  appropriate  the  expected  bene- 
fit of  the  speculation  to  their  own  use,  or  to  g-ive  it  to 
the  bank,  and  a  complainant  is  entitled  to  any  relief 
which  the  facts  that  he  pleads  in  his  bill  and  establishes 
on  the  trial  justify.  When  the  ultimate  facts  requisite 
to  entitle  him  to  the  relief  he  prays  are  pleaded  and 
proved,  he  cannot  be  defeated  because  he  also  pleaded 
other  facts  not  essential  to  his  recovery,  which  he  did 
not  prove.     Kspey  v.  Lake,  10  Hare,  260,  264. 

Another  objection  to  the  decree  is  that  the  court 
below  allowed  interest  on  the  amount  misappropriated, 
and  it  is  contended  that  this  was  erroneous,  because 
this  case  does  not  fall  among-  those  in  which  interest 
is  expressly  allowed  by  the  statutes  of  Colorado  (Mills' 
Ann.  St.  §  2252).  But  this  is  a  suit  in  equity,  and  no 
statute  is  necessary  to  give  a  court  of  equity  power  to 
allow  interest  on  moneys  unjustly  detained  or  misap- 
propriated. When  interest  is  reserved  in  a  contract, 
or  is  implied  from  the  nature  of  the  promise,  it  becomes 
a  part  of  the  debt,  and  is  recoverable  as  of  right. 
When  mone}^  has  been  misappropriated  or  converted  to 
his  own  use  by  a  defendant,  interest  is  g-iven  as  dam- 
ages to  compensate  the  complainant  for  the  loss  of  the 
use  of  his  funds.  In  cases  of  the  latter 
class,  its  allowance  is    sometimes    a    matter  Jiisappjopriatioii 

-,.  .  ^       ,    •,   •  1  111      tr  Funds— Inter- 

ot  discretion  ;  but  it  is   a  general   rule,  both   est. 
at  law  and  in  equity,  that,  whenever  one  has 
wrong-fully  detained  or  misappropriated  the  moneys  of 
another,  he  must  pay  interest  at  the  leg-al  rate  from  the 
date  of  the  misappropriation  or  from  the  beginning*  of 
the  detention.     Swinisen    v.    Scawen,  1  Dickens,  117; 


536  OFFICERS  [vol  I 

Cooper  V.  Hill 

Redfield  v.  Iron  Co.,  110  U.  vS.  174,  176,  3  Sup.  Ct. 
570  ;  United  States  v.  North  Carolina,  136  U.  S.  211, 
218,  10  Sup.  Ct.  920  ;  Jourolmon  r.  Ewing-,  47  U.  S. 
App.  679,  686,  26  C.  C.  A.  23,  27,  and  80  Fed.  604. 
607  ;  Filmore  v.  Reithman,  6  Colo.  120,  131  ;  1  Sedg-. 
Dam.  §§  301,  303. 

4.  Finally  it  is  claimed  that  this  cause  of  action  is 
barred  by  the  statute  of  limitations  and  by  laches,  and 
sections  2900,  2909,  2911,  and  2912  of  Mills'  Annotated 
Statutes  of  Colorado  are  invoked  to  sustain  this  con- 
tention. Section  2900  provides  that  all  actions  of 
assumpsit  or  on  the  case,  founded  on  any  contractor 
liability,  express  or  implied,  shall  be  commenced  within 
six  years  next  after  the  cause  of  action  shall  accrue, 
and  not  afterwards.  Section  2909  declares  that,  in 
cases  of  concurrent  jurisdiction  in  the  courts  of  com- 
mon law  and  the  courts  of  equity,  the  same  limitations 
shall  apph^  to  suits  in  equity  and  to  actions  at  law. 
Section  2911  limits  the  time  for  the  commencement  of 
suits  for  relief  on  the  g-round  of  fraud  to  three  years 
after  the  discovery  of  the  facts  constituting  the  fraud. 
Section  2912  provides  that  bills  of  relief,  in  case  of  the 
existence  of  a  trust  not  cog-nizable  by  the  courts  of 
common  law,  shall  be  filed  within  five  years  after  the 
cause  of  action  accrues,  and  not  later.  The  last 
•section  does  not  g-overn  the  cause  of  action  here  in  suit, 
because  that  cause  is  based  on  the  disregfard  of  their 
powers  by  the  agfents  and  implied  trustees  of  a  corpo- 
ration, and  this  cause  of  action,  as  well  as  the  trust 
relation  from  which  it  springs,  is  cog-nizable  at  law  as 
well  as  in  equit}'.  It  does  not  fall  under  section  2911, 
because  fraud  was  not  essential  to  its  maintenance  and 
was  not  proved,  and  the  decree  stands  upon  the  simple 
diversion  of  the  funds  of  the  bank  to  an  unauthorized 
purpose.  It  rests  on  the  implied  liability  created  under 
the  law  by  the  relation  of  the  appellants,  as  its  oflBcers, 
to  the  bank.  Why  does  it  not  fall  under  section  2900? 
The  appropriate  action  at  law  to  enforce  the  implied 
liability  upon  which  it  rests  is  an  action  on  the  case, 
and  this  section    provides  that  the    time    for    the  com- 


B  CAS]  OFFICERS  537 

Cooper  V.  Hill 

mencement  of  such  an  action  is  limited  to  six  years 
from  the  time  when  its  cause  accrued.  The  conclusion 
is  inevitable  that  an  action  at  law  for  the  cause  upon 
which  this  decree  is  based  would  have  been  sfoverned 
by  section  2900,  and  eould  not  have  been  maintained 
six  years  after  its  cause  accrued.  The  natural  result 
of  this  conclusion  is  that  this  suit  oug-ht  to  be  g-overned 
by  the  same  rule,  both  on  the  ground  that  courts  of 
equity  usually  apply  the  doctrine  of  laches  in  analog-y 
to  the  statute  of  limitations  relative  to  actions  at  law 
of  like  character,  and  on  the  ground  that  section  2909, 
supra,  expressly  requires  it  to  be  so  applied. 

The  appellee  endeavors  to  escape  from  this  limitation 
on  the  ground  that  these  appellants  were  trustees  of 
an  express  trust,  and  that  consequently  no  time  runs 
in  their  favor.  It  must  be  conceded  that  express  trusts 
are  not  within  the  statute  of  limitations,  because  the 
possession  of  the  trustee  is  presumed  to  be  the  possession 
of  the  cestui  que  trust.  But  lapse  of  time  is  a  complete 
bar  to  a  constructive  or  implied  trust,  both  in  equity 
and  at  law,  unless  there  has  been  a  fraudulent  conceal- 
ment of  the  cause  of  action,  or  other  extraordinary 
circumstances  which  make  the  application  of  the 
doctrine  of  laches  inequitable.  Hayden  v.  Thompson, 
36  U.  S.  App.  362,  377,  17  C.  C.  A.  592,  601,  and  71 
Fed.  60,  69.  The  question  presented  then  is,  are  the 
officers  of  a  national  bank  the  trustees  of  an  express 
trust  for  its  creditors  and  stockholders,  within  the 
meaning"  of  this  rule  ?  They  are  not  parties  or  privies 
to  any  express  contract  or  agreement  to  hold  and  use 
the  funds  of  the  bank  for  the  purposes  prescribed  by 
the  acts  of  congress.  They  are  not  parties  or  privies 
to  any  express  declaration  of  trust  or  agreement  with 
the  stockholders  or  creditors  of  their  bank  which  sets 
forth  the  terms  on  which  they  hold  its  funds  for  their 
benefit.  The}^  are  the  mere  agents  of  the  bank  to 
discharge  the  duties  imposed  upon  it  and  upon  them 
by  the  law  of  its  being,  by  the  statutes  of  the  United 
States,  and  the  common  law  of  the  land.  Their  lia- 
bility arises  from  no  express  agreement,  but  from  their 


538  OFFICERS  [vol  I 

Cooper  I'.  Hill 

violation  of  their  duties  as  such  ag-ents.  They  un- 
questionably stand  in  a  fiduciary  relation  to  the  bank, 
to  its  stockholders,  and  its  creditors,  and  they  hold  its 
assets  in  trust  for  these  beneficiaries.  But  there  is  no 
express  ag-reeraent  or  declaration  of  this  trust  to  be 
found,  and  they  cannot  be  truthfully  said  to  be  trustees 
of  an  express  trust.  The  trust  with  which  the  prop- 
erty of  the  bank  is  impressed  in  their  hands  arises  from 
the  law,  and  from  their  acceptance  of  the  office  they 
hold.  It  is  not  an  express  trust  arising-  from  contract 
or  privity,  but  an  implied  or  resulting"  trust  created 
by  the  operation    of  the  law  upon  their    official  relation 

to  the  bank.  The  result  is  that  the  officers 
Officers  as  Trust-  of  a  national  bank  are  not  the  trustees  of  an 
-Laches.  express,  but  of  an  implied,  trust  for  the  bank 

and  its  stockholders  and  creditors,  and  stat- 
utes of  limitation  and  the  doctrine  of  laches  may  be  in- 
voked in  their  defense.  Hayden  f.  Thompson,  .s"///?r/ 
Brig-gsc'.  Spaulding-,  141  U.  S.  132,  147,  11  Sup.  Ct.  924 
Mor.  Corp.  §  516  ;  Spering-'s  Appeal,  71  Pa.  St.  11 
Hug-hes  f.  Brown,  88  Tenn.  578,  13  S.  W.  286;  Wallace 
f.  Bank,  89  Tenn.  630,  15  S.  W.  448.  The  controversy 
thus  narrows  itself  to  this  question  :  Has  the  bank 
or  its  receiver  been  gfuilty  of  such  laches  that  they 
oug-ht  not  to  be  permitted  to  maintain  this  action  ? 
Ordinarily  laches  runs  pari  f>assi(  with  the  statute  of 
limitations.  If  the  latter  has  barred  the  analogous 
action  at  law,  laches  has  stayed  the  corresponding  suit 
in  equity.  But  if  unusual  conditions  or  extraordinary 
circumstances  make  it  inequitable  to  allow  the  prose- 
cution of  a  suit  after  a  briefer,  or  to  forbid  its  main- 
tenance after  a  longer,  period  than  that  fixed  by  the 
statute,  the  chancellor  will  not  be  bound  by  the  statute, 
but  will  determine  the  extraordinary  case  in  accordance 
with  the  equities  which  condition  it.  Kellev  :•.  Boett- 
cher,  56  U.  S.  App.  363,  375,  29  C.  C.  A.  14,  21, 
and  85  Fed.  55,  62.  If  the  acts  of  the  appellants 
upon  which  this  suit  is  founded  had  been  parts  of 
a  continuous  and  persistent  course  of  action  which  had 
wrecked  this  bank  and  robbed  its  creditors  and  stock- 


B  CAS]  OFFICERS  539' 

Cooper  V.  Hill 

holders,  if  they  had  been  accompanied  with  intentional 
misrepresentations,  if  they  had  been  purposel}^  or  negf- 
litrently  concealed  from  the  other  officers  and  emplo3'ees 
of  the  bank  or  from  its  stockholders  and  creditors,  these 
facts  mig"ht  well  induce  a  court  of  equity  to  permit  this 
suit  to  be  maintained  notwithstandino-  the  statute.  The 
case  at  bar  presents  a  very  different  state  of  facts. 
When  this  money  was  diverted  the  bank  was  solvent 
and  prosperous.  Its  manag-ement  by  the  appellants 
appears  to  have  been  beneficial  and  success-        ,   , 

-^  LilCllfSi 

ful.  Its  stock  was  selling-  at  S325  per  share 
of  the  par  value  of  $100.  The  appellants  sold  their 
stock  and  turned  over  the  control  of  the  bank  to  others. 
The  diversion  and  use  of  this  money  appeared  on  the 
books  of  the  bank,  and  was  known  to  the  cashier,  Clin- 
ton, who  succeeded  Cooper,  as  early  as  August,  1889. 
The  bank  continued  in  business  until  1894.  No  com- 
plaint of  the  acts  of  the  appellants  was  made  until  after 
its  failure,  and  no  suit  was  instituted  until  October  25, 
1895.  There  is  certainly  nothing-  in  this  state  of  facts 
to  warrant  a  refusal  to  permit  the  doctrine  of  laches  to 
have  its  accustomed  effect;  nothing-  to  induce  us  to  sus- 
pend its  application  at  the  end  of  six  years  after  the 
cause  of  action  accrued  when  the  statute  of  Colorado 
barred  the  analog-ous  action  at  law  at  that  time.  The 
bank  and  the  receiver  were  too  late  to  maintain  this 
action  at  the  expiration  of  six  years  from  the  time  its 
cause  accrued. 

An  application  of  the  principles  and  rules  that  have 
been  considered  will  quickly  dispose  of  this  case.  The 
appellants  commenced  to  use  the  funds  of  the  bank  to 
clear  out  the  shaft  and  prepare  the  property  in  question 
for  sale  in  February,  1888.  They  began  to  divert  the 
moneys  of  the  bank  to  prospect  for  ore  at  some  time 
before  July  1,  1888;  for  at  that  date  they  had  used 
$6,800  upon  this  property,  when  only  $2,000  was  nec- 
essary to  make  it  presentable  to  purchasers.  They 
completed  their  misappropriation  of  the  menevs  on 
April  10,  1889.  The  wrong  was  then  done,  the  cause 
of  action  was  complete,  and  the  statute  of  limitations 


540  OFFICERS  [vol,  I 

Note 

and  laches  would  have  prevented  the  maintenance  of 
any  suit  upon  it  which  was  commenced  more  than  six 
years  after  that  date,  if  the  operations  of  the  appellants 
had  stopped  here.  Unfortunatel^y  for  the  appellants, 
they  did  not.  In  June  or  July,  1888,  the}'  and  Reith- 
mann  had  refunded  to  the  bank  S6,000  of  the  S6,800 
which  had  then  been  expended  on  the  mining-  property, 
and  on  or  about  December  23,  1889,  they  caused  the  bank 
to  repa}-  to  them  this  S6,000.  We  have  already  held 
that  they  were  authorized  to  expend  S2,000  to  put  this 
property  in  salable  condition,  and  as  this  S2,000  was 
refunded  to  the  bank,  in  the  $6,000  paid  to  it  by  them 
in  the  summer  of  1888,  they  were  entitled  to  a  return 
of  this  mone}'  in  December,  1889.  To  that  extent  the 
repa3mient  in  that  month  may  be  sustained.  But  84,000 
of  the  86,000  which  they  then  received  was  repaid  to 
them  on  account  of  money  which  they  had  wrong-fully 
diverted  from  the  funds  of  the  bank,  and  for  which  they 
were  personalU^  liable.  The  bank  did  not  owe  them 
this  84,000,  and  they  took  it  from  its  funds  without 
lawful  authority,  and  in  violation  of  their  trust.  All 
their  other  misappropriations  were  made  more  than  six 
years  before  the  commencement  of  this  suit,  and  their 
recovery  is  barred  by  laches.  But  this  was  within  the 
six  years,  and  the  appellee  is  entitled  to  a  decree  for 
its  recovery.  The  decree  below  is  accordingly  re- 
versed, and  the  case  is  remanded  to  the  court  below, 
with  instructions  to  enter  a  decree  in  favor  of  the 
appellee  and  ag-ainst  the  appellants  for  the  recovery  of 
84,000,  and  interest    from  December  23,  1889. 


Directors — Misappropriation — Statute  of  Limitations.  —  Directors 
of  a  corporation,  being"  trustees  of  an  implied  trust,  may  plead  the 
statute  of  limitations  as  a  defence  to  a  suit  in  equity  for  their  mis- 
conduct in  the  manag'ement  of  the  corporation's  affairs.  Williams 
z'.  Halliard,  38  N.  J.  Eq.  373  ;  Spering-'s  Appeal,  71  Pa.  St.  11. 

See  co/ifra, 'EiUis  V.  Ward  (111.),  20  N.  E.  Rep.  671,  in  which  case 
the  court  said:  "It  is  a  principle  of  g'eneral  application,  and  recog^- 
nized  by  this  court,  that  the  assets  of  a  corporation  are,  in  equity, 
a  trust  fund  (St.   Louis   &    Sandoval   Coal   &   Mining   Co.    v.  San- 


B  CAS]  OFFICERS  541 

Warren  z'.  Robison 

doval  Coal  &  Mining  Co.,  116  111.  170,  12  Am.  &  Eng-.  Corp. 
Cas.  286) ,  and  that  the  directors  of  a  corporation  are  trustees, 
and  have  no  power  or  rig-ht  to  use  or  appropriate  the  funds  of 
the  corporation,  their  cestui  que  trust,  to  themselves,  nor  to  vs^aste, 
destroy,  give  away,  or  misapply  them.  Holder  v.  Lafayette,  B. 
&  M.  "R.  Co.,  71  111.  106;  Cheeney  v.  Lafayette,  B.  &  M.  R. 
Co.,  68  111.  570,  1  Mor.  Priv.  Corp.  iji;  516,  517.  And  it  is  equally 
well  settled  that  no  lapse  of  time  is  a  bar  to  a  direct  or  express 
trust,  as  between  the  trustee  and  cestui  que  trust.  Chicago 
&  E.  O.  R.  Co.  V.  Hay,  119  111.  493  ;  Wood,  Lim.  ij  200,  and  cases 
cited  in  note.  If  the  trust  assumed  by  the  directors  of  a  corporation 
in  respect  of  the  corporate  property  under  their  control  is  to  be 
regarded  as  a  direct  trust,  as  contradistinguished  from  simply  an 
implied  trust,  then  it  is  apparent,  under  the  rule  announced,  the 
statute  presents  no  bar  to  this  proceeding  by  the  receiver  of  the 
corporation.  Ordinarily,  an  express  trust  is  created  by  deed  or  will ; 
but  there  are  many  fiduciarj'  relations  established  by  law,  and 
regulated  by  settled  legal  rules  and  principles,  where  all  the  ele- 
ments of  an  express  trust  exist,  and  to  which  the  same  legal  princi- 
ples are  applicable,  and  such  appears  to  be  the  relation  established 
by  law  between  directors  and  the  corporation.  2  Pom.  Eq.  Jur.  jj 
963  ;  3  Pom.  Eq.  Jur.  i<;<  1088-1090,  1094.  And  see,  also,  as  respects 
stockholders,  Hightower  v.  Thornton,  8  Ga.  486  ;  Payne  v.  Bullard, 
23  Miss.  88  ;  Curry  v.  Woodward,  53  Ala.  371.  The  statute,  therefore, 
presented  no  bar." 


Warren  ct  al. 

V. 

Robison  d  a  I. 

{Supreme  Court  of  Utah,  April  26,  iSgg.) 

Banks — Mismanagement  of  Corporate  Affairs — Power  of  Direct- 
ors to  Escape  Liability  by  Delegating  Authority. — A  board  of  directors 
of  a  banking  corporation  is  elected  primarily  for  the  management 
of  the  corporate  affairs  ;  and  when  the  board  delegates  its  authority 
to  the  executive  officers,  and  through  their  carelessness  and  mis- 
management disaster  and  loss  to  the  stockholders  and  creditors 
ensue,  the  individual  members  of  the  board  cannot  escape  liability- 
by  showing  that  they  did  not  know  of  the  unfortunate  transactions, 
and  were  ignorant  of  the  business  of  the  corporation. 

Duties  of  Bank  Directors.* — Directors  of  a  banking  corporation 
are  bound  to  use  ordinary  care  and  prudence,  and  to  exercise  over 
the  affairs  of  the  bank  such  supervision  and  vigilance  as  a  discreet 
person  would  exercise  over  his  own  affairs. 

Directors  Neglecting  Duties — Liability — Prima  Facie  Case. — A 
showing   that   certain    directors  of   a  defunct  banking  institution 

*See  note  at  end  of  case. 


542  OFFICERS  [vol  I 

Warren  v.  Robison 

were  careless  and  neg'ligent  in  the  performance  of  their  duties  as 
such  directors,  that  they  exercised  no  stipervision  over  the  conduct 
of  its  affairs,  but  turned  everything-  over  to  the  executive  officers, 
ajid  allowed  loans  to  be  made  to  the  officers  of  the  bank  and  to 
others,  practically  without  security,  and  that  these  loans  resulted 
in  wrecking-  the  bank,  in  an  action  on  behalf  of  stockholders  and 
creditors  for  an  accounting  and  for  damages,  is  a  sufficient  showing 
to  establish  3.  prima  facie  case  against  such  directors,  and  a  nonsuit 
as  to  them  was  improperlj'  granted. 
(Syllabus  by  the  Court.) 

Appeal  by  plaintiffs  from  Second  district  district 
court.     Reversed  hi  part  and  affirmed  i)i  pari. 

M.  D.  Lessenger,  A.J.  Weber,  ElijaJi  Farr,  and 
Bennett,  Harkness,  Hozvat,  Bradley  <£:  RicJiards,  for 
appellants. 

L.  R.  Rog-ers,  T.  D.  Jo/inson,  R.  H.  W/iippie,/.  S. 
Borenian,  and  MarsJiall,  Royle  &  Hempstead,  for 
respondents. 

Bartch,  C.  J.  This  action  was  instituted  by  the 
plaintiffs,  as  stockholders  of  defendant  Citizens'  Bank, 
in  behalf  of  themselves  and  all  other  stockholders, 
„    ^_  .  creditors,    and    others    similarly    situated, 

aofainst  the  defendants  tor  an  accountmo-, 
and  for  damag-es  alleg-ed  to  have  been  occasioned  by 
reason  of  neg^ligence  in  the  manag-ement  of  the  bank 
by  its  directors  and  officers.  It  appears  that  the  bank 
was  organized  about  Auofust  11,  1890,  with  a  capital 
stock  of  $150,000,  and  the  banking-  business  commenced 
soon  thereafter.  It  failed,  and  made  an  assig-nment 
for  the  benefit  of  its  creditors  on  December  26,  1893, 
and  afterwards  a  receiver  was  appointed.  The  defend- 
ants H.  H.  Spencer,  Georg-e  Murphy,  Ad.  Kuhn,  John 
Maguire,  R.  A.  Wells,  Newall  Beeman,  George  W. 
Perkins,  S.  S.  Schramm,  and  W.  W.  Corey  were 
directors.  W.  W.  Corey  was  the  first  president,  and 
Newall  Beeman  was  the  president  when  the  bank 
failed.  The  defendant  Theodore  Robison  v^'as  vice 
president  and  manager,  and  Charles  M.  Brough  was 
cashier.  J.  C.  Armstrong  was  receiver.  The  trans- 
actions which    resulted  disastrously   to  the   bank,  and 


B  CAS]  OFFICERS  543 

Warren  <'.  Robison 

which,  it  is  claimed,  were  made  because  of  the  neo^li- 
^ence  of  the  directors  and  officers,  are  of  such  a  char- 
acter as  to  require  careful  investigation.  It  is 
certainly  quite  startling-  to  notice  that  a  bank  in  the 
hands  of  honest  business  men,  as  the  directors  and 
officers  were  reputed  to  be,  should  in  so  short  a  space 
of  time  meet  with  so  many  heavy  losses  as  to  actually 
wreck  the  institution.  The  losses,  it  appears  from  the 
testimony,  beg-an  immediately  upon  the  commencement 
of  the  business,  as  is  evidenced  by  the  shortage  of 
Barbour,  the  first  cashier,  who,  although  a  banker  of 
good  reputation,  was,  it  seems,  a  stranger  to  the 
directors.  He  was  placed  in  charge  of  the  funds  of 
the  bank  without  first  having  given  a  bond,  as  required 
by  the  articles  of  incorporation,  in  respect  to  active 
executive  officers,  and  through  the  leniency  of  the 
directors  had  given  no  bond  at  the  time  of  his  death, 
which  occurred  about  three  weeks  after  the  commence- 
ment of  the  corporate  business.  Then,  upon  the  cash 
being  counted,  a  shortage  of  $3,600  was  discovered, 
which  resulted  in  a  total  loss.  Soon  after  the  organi- 
zation of  the  bank,  the  Anderson  Pressed-Brick 
Company,  a  new  corporation,  became  one  of  its 
customers,  and  loans  were  made  to  it,  which  resulted 
in  a  loss  to  the  bank  of  $22,000.  That  corporation  was 
capitalized  at  $50,000,  and  one  witness  said  its  plant 
was  worth  in  the  neighborhood  of  $45,000,  while  other 
witnesses  estimated  its  value  to  have  been,  about  the 
time  the  loans  were  made,  from  $12,000  to  $20,000. 
One  of  the  directors  of  the  bank  was  also  a  director  in 
the  brick  company.  After  the  loans  were  made, 
security  was  taken  on  the  plant ;  but,  owing  to  a 
misdescription  in  the  mortgage,  the  security  proved  to 
be  worthless,  after  the  company  had  become  other- 
wise involved  and  judgment  had  been  entered  ag-aiust 
it.  In  1891  the  Junction  City  Driving--Park  Association 
was  organized  for  the  purpose  of  promoting  an  interest 
in  horses.  Several  directors  of  the  bank  became  also 
directors  of  the  association,  and  the  president  of  the 
bank  was   its   president,  and  the  vice  president  of  the 


544  OFFICERS  [vol  I 

Warren  i'.  Robison 

bank  was  the  treasurer  of  the  association.  Throuofh 
this  association,  by  way  of  loans  and  overdrafts,  made 
and  permitted,  it  appears,  without  security,  the  bank 
lost  about  $1,700.  So  the  Junction  City  Paint  Com- 
pany borrowed  of  the  bank  $4,750,  and  afterwards 
another  creditor,  it  appears,  attached  the  property'  of 
the  company,  and  then  the  bank  boug-ht  in  the  stock 
for  $4,360,  paid  off  the  judg-ment  of  the  creditor,  and 
carried  on  the  paint  business,  under  the  name  of  H. 
Gillette  &  Co.,  until  a  purchaser  was  found  for  the 
stock.  The  loss  to  the  bank  occasioned  by  this  trans- 
action was  over  S9,000.  The  bank  was  also  unfortu- 
nate in  dealing's  with  Corey  Bros.  &  Co.  Its  president, 
W.  W.  Corey,  was  a  member  of  that  firm,  and  the 
firm  borrowed  money  from  the  bank  from  time  to  time, 
without  security,  until,  when  it  failed  in  business  and 
assig-ned,  it  owed  the  bank  $28,000.  The  firm  had  also 
borrowed  from  another  bank  about  S70,000,  but  that,  it 
seems,  was  secured  by  real  estate.  The  evidence 
relating-  to  the  transactions  resulting-  in  the  $28,000  yet 
remaining-  unpaid  is  such,  to  say  the  least,  as  to  raise 
a  strong-  suspicion  of  negligence  on  the  part  of  those 
whose  duty  it  was  to  supervise  the  affairs  of  the  bank, 
and  it  savors  much  of  a  violation  of  law.  The  loan  to 
James  C.  Ivonergau  of  $700  also  resulted  in  a  loss  to 
the  bank.  This  loan  was  recommended  by  one  of  the 
directors,  and  was  made  without  security.  So  it 
appears  the  bank  lost  $3,200,  throug-h  loans  and  over- 
drafts, without  security,  except  some  bank  stock,  to 
Theodore  Robison,  its  manag-er.  Likewise  its  cashier, 
Helfrich,  made  overdrafts  and  received  loans  which 
resulted  in  a  loss  to  the  bank  of  $6,375.  The  over- 
drafts, it  appears,  he  beg-an  to  make  in  October,  1890. 
Another  loan  which  proved  unfortunate  and  a  loss  to 
the  bank  was  one  of  S10,000  to  the  Cache  Valley  Land 
&  Canal  Company.  The  plaintiffs  claim  this  loan  was 
made  indirect!}"  to  the  ofhcers  of  the  bank.  It  appears 
that  Robison,  the  manag-er  of  the  bank,  was  also  presi- 
dent of  the  canal  company  ;  that  Broug-h,  the  bank's 
cashier  at  the   time  of   the    loan,    was    treasurer   and 


B  CAS]  OFFICERS  545 

Warren  v.  Robison 

director  of  that  company  ;  and  that  Corey,  the  presi- 
dent of  the  bank,  was  vice  president  and  a  director 
of  the  company.  The  canal  and  property  of  that 
company  were  situated  in  the  state  of  Idaho.  Such 
are  the  hjsses  complained  of  in  this  case,  and,  as 
will  be  noticed,  they  ag-g-reg-ate  over  $84,500.  At 
the  trial,  when  the  plaintiffs  rested  their  case,  various 
motions  for  nonsuit  were  made,  and,  upon  arg-ument^ 
g-ranted  by  the  court,  except  as  to  defendant  \Y.  W. 
Corey. 

The  important  question  presented  is,  did  the  plain- 
tiffs make  ovX-Ql  prima  facie  caj^^l  To  determine  this^ 
it  is  necessary  to  consider  first  the  deg-ree  of  care  and 
dilig-ence  and  the  extent  of  supervision  which  must  be 
exerjcised  by  directors  and  officers  of  a  banking-  insti- 
tution, so  as  to  discharg-e  their  duty  to  stockholders 
and  creditors,  and  then  ascertain  whether,  under  the 
evidence  as  it  now  appears,  all  or  any  of  the  defendants 
exercised  such  supervision,  skill,  and  dilig^ence  as. 
the  circumstances  and  nature  of  the  business  required. 
It  is  not  contended  that  the  directors  knowingfly  per- 
mitted any  violation  of  law  in  any  banking-  transaction^ 
or  that  they  were  dishonest  in  the  administration  of 
the  bank's  affairs  ;  but  it  is  insisted  that  they 
wrong-fully  intrusted  the  exclusive  manag-ement  and 
control  of  the  banking-  business  to  the  cashier  and 
manag-er,  and  were  neg-lig-ent  in  the  performance  of  the 
duties  imposed  upon  them  by  law. 

The  statute  under  which  this  bank  was  incorporated,, 
and  its  business  transacted,  is  found  in  the   Compiled 
Laws  of  Utah  1888,  and  provides  in  section 
2498,  subds.  5,  7,  as  follows  :   "(5)  To  elect  Banks-Mmnan- 

.  1111  !•  r  •  sidiipnt  of  Corpo- 

by  its  stockholders,  directors  irom  time   to  riueAtrairs- 

y  J  ,        .        ,  ,       r  J.  .  Power  of  Dircflnrv 

time,  and  by  its  board  ot  directors,  to  appoint  toEsmpeUiihiiitv 
a  president,  a  vice-president,  cashier  and  Abtiiority. 
such  other  officers  as  shall  be  provided  for 
in  its  articles  of  association,  define  their  duties,  require 
bonds  of  them,  and  fix  the  penalty  thereof,  dismiss 
such  officers  or  any  of  them  at  pleasure,  and  appoint 
others   to  fill   their  places.     *     *     *     (7)  Xo  exercise 

B  CAS— 35 


546  OFFICERS  [vol  I 

Warren  ?'.  Robison 

by  its  board  of  directors  or  duly  authorized  officers  or 
ag"ents,  subject  to  law,  all  such  incidental  powers  as 
shall  be  necessary  to  carry  on  the  business  of  banking- 
by  discounting- or  neg-otiating-  promissory  notes,  drafts, 
bills  of  exchang-e  and  other  evidences  of  debt,  by 
receiving-  deposits,  by  buying-  and  selling-  exchang-e, 
coin  and  bullion,  and  by  loaning-  on  personal  or  real 
security."  No  doubt  the  board  of  directors  of  a  bank 
incorporated  under  the  act  of  which  these  provisions 
form  a  part  may  appoint  executive  and  other  officers, 
as  therein  provided,  and  may  "carry  on  the  business 
of  banking-"  through  such  officers  ;  but  this  does  not 
release  the  directors  from  the  duties  which  devolve 
upon  them.  It  does  not  follow  that  the  responsibilit}' 
of  the  board,  or  of  the  individual  director,  ends  with 
the  appointment  of  honest  men  to  the  executive  offices. 
The  languag-e  of  the  statute  does  not  enable  the  direct- 
ors to  say  that  they  have  no  duties  of  supervision  and 
control.  If  it  had  been  the  intention  of  the  legfislature 
that  the  officers  provided  for  should  have  full  control, 
without  supervision,  of  the  business  transactions  and 
affairs  of  a  bank,  then  it  would  have  been  a  useless 
thing-  to  provide  for  a  board  of  directors,  for  the  stock- 
holders could  elect  such  officers  as  easily  as  they  could 
the  board.  The  legfislature  had  in  view  no  such  pur- 
pose. The  directors  were  not  intended  to  be  mere 
Hg-ureheads  without  dut}^  or  responsibility.  The 
manifest  desig-n  of  the  lawmakers  was  that  the  officers, 
elected  by  the  board,  were  to  look  after  and  attend  to 
the  details  of  business,  and  generally  to  conduct 
ordinary  business  matters.  They  are  the  means  with 
which  the  directors  are  to  administer  the  affairs  of  the 
bank.  It  is  therefore  the  rig-ht  and  duty  of  the  direct- 
ors to  take  upon  themselves  the  management  of  the 
institution,  and  to  exercise  and  maintain  a  supervision 
over  all  business  operations,  upon  the  skillful  and  wise 
conduct  of  which  depend  the  prosperit}^  of  the  institu- 
tion and  the  safety  of  those  dealing-  with  it.  This  duty 
of  manag-ement  and  supervision  they  cannot  shift  upon 
the  officers,  and  such  duty  is  imposed  as  to  no  depart- 


B  CAS]  OFFICERS  547 

Warren  v.  Robison 

ment  of  the  banking*  business  more  certainly  than  that 
of  making-  loans  and  discounts,  Morse,  Banks,  §  117. 
It  is  true,  the  executive  officers  attend  to  and  execute 
the  details  of  the  transactions  of  the  institution  ;  but 
it  is  nevertheless  incumbent  upon  the  board  of  directors 
to  possess  a  g-eneral  knowledge  of  the  character  of  the 
transactions  and  of  the  manner  in  which  they  are 
made.  While  such  directors  are  not  required  to  watch 
the  ordinary  routine  of  business,  or  observe  the  exact 
state  of  each  day's  accounts,  still  they  are  bound  to 
possess  a  g-eneral  knowledgfe  of  the  manner  in  which 
the  business  is  transacted,  and  of  the  character  of  the 
transactions,  and  to  maintain  such  a  degree  of  vig'ilance 
over,  and  intimacy  with,  the  business  as  will  enable 
them  to  know  to  whom  and  upon  what  security  the 
large  lines  of  credit  are  given,  ^specially  is  this  so 
as  to  large  loans  and  discounts,  or  matters  at  once 
affecting-  the  stability  and  prosperity  of  the  bank,  and 
the  safety  of  depositors.  It  is  true,  directors  of  a 
banking-  institution  will  not  be  held  responsible  for 
sudden  and  unexpected  violations  of  law  or  duty  by 
executive  officers,  or  for  losses  which  ordinary  vigi- 
lance could  not  prevent.  Nor  is  a  director  responsible 
for  acts  committed,  transactions  made,  or  losses  incurred 
before  he  became  a  member  of  the  board,  or  for  any 
act  of  the  board  done  in  his  absence  and  without  his 
knowledge  and  assent,  or  for  the  default  of  a  co-direct- 
or, made  without  his  connivance  or  assent.  Briggs  i\ 
Spaulding,  141  U.  S.  132,  11  Sup.  Ct.  924.'  The 
duties  of  officers  appointed  by  the  board  are  of  an 
executive  character,  and  relate  niainU^  to  details,  and 
doubtless  the  making  of  a  loan  or  discount  in  any 
considerable  amount,  or  the  transaction  of  other 
business  of  moment,  should  be  preceded  by  an  author- 
ization from  the  board.  The  duties  of  directors  are 
administrative,  relate  to  supervision  and  direction,  and 
when  it  is  sought  to  hold  them  responsible  for  a 
dereliction  of  duty,  because  of  which  a  loss  occurred  to 
stockholders  and  creditors,  they  cannot  evade  liabilit}- 
by  pleading"  ignorance  of  the  affairs  of  the  institution. 


548  OFFICERS  [vol  I 

Warren  v.  Robison 

incompetency,  or  g-ratuitous  service,  or  that  the  man- 
ag^ement  of  the  banking-  business  was  in  the  hands  of 
the  cashier  or  other  executive  officer.  "Where  there 
is  a  duty  of  finding-  out  and  knowing*,  neg-lig-ent 
ignorance  has  the  same  effect  in  law  as  actual  know- 
ledg-e.  While  the  directors  of  a  corporation  may  and 
must,  as  already  stated,  commit  the  details  of  its 
business  to  inferior  officers,  this  does  not  absolve  them 
from  the  duty  of  maintaining-  a  reasonable  supervision, 
and,  if  such  inferior  officers  waste  the  assets  of  the 
corporation,  it  is  conceded  that  the  directors  cannot 
escape  liability  on  the  ground  that  they  did  not  know 
of  the  wrong-doing-,  provided  that  it  appear  that  their 
ignorance  was  the  result  of  a  w^ant  of  that  care  which 
ordinarily  prudent  and  dilig-ent  men  would  exercise 
under  similar  circumstances."  And  their  liability 
does  not  depend  upon  statute.  "The  liability  of 
directors  to  the  corporation  for  damages  caused  by 
unauthorized  acts  rests  upon  the  common-law  rule 
which  renders  every  ag-ent  liable  who  violates  his 
authority  to  the  damag-e  of  his  principal.  A  statutor^^ 
prohibition  is  material,  under  these  circumstances, 
merely  as  indicating-  an  express  restriction  placed 
upon  the  powers  delegated  to  the  directors  when  the 
corporation  was  formed."  Mor,  Priv.  Corp.  §  556; 
Brinckerhoff  v.  Bostwick,  88  N.  Y.  52.  Such  is  like- 
wise the  case  where  damag-es  have  resulted  to  stock- 
holders and  creditors  through  unauthorized  acts  or 
omissions  of  duty  in  the  management  of  the  corporate 
business.  Nor  is  such  liability  affected  by  the  techni- 
cal relation  existing-  between  the  directors  and  the 
corporation,  stockholders,  or  creditors.  It  exists, 
whether  the  relation  be  that  of  trustees  to  cestui  que 
trust,  or  of  ag-ents  to  principals.  Doubtless,  as  be- 
tween the  bank  and  a  director,  it  is  mainly  that  of 
principal  and  agent,  while  under  some  circumstances 
the  relation  of  trustee  to  cestui  que  trust  ma}'  exist. 
Whatever  the  technical  relation  may  be,  to  determine 
what  acts  or  omissions  amount  to  actionable  negligence 
is  a  matter  of  no  little  difficulty.     Undoubtedly  each 


I 


B  CAS]  OFFICERS  549 

Warren  v.  Robison 

case  must  depend  upon  its  own  peculiar  circumstances. 
The  opinions  of  judg-es  respecting-  the  deg^ree  of  care, 
skill,  and  dilig^ence  which  directors  of  a  banking"  insti- 
tution must  exercise  in  order  to  avoid  liability  for  neg"- 
lig-ence  are  not  all  harmonious.  That  they  must 
exercise  some  degree  of  care  and  dilig-ence  is  not  sub- 
ject to  controversy.  What  degree  of  negligence  will 
render  them  liable?  What  deg^ree  of  care  and  dili- 
gence must  they  exercise  to  avoid  liability  ?  Some  of 
the  courts  have  held  that  such  directors  are  liable  only 
for  "crassa  iicglig'Oitia,''  which,  taken  literally,  means 
"gross  neg-ligence."  That  phrase,  hovv-ever,  has  been 
held  to  mean  a  want  of  ordinar}^  care  and  dilig-ence. 

In  Scott  V.  Depeyster,  1  Kdw.  Ch.  513,  the  vice 
chancellor  said  :  "I  think  the  question  in  all  such  cases 
should  and  must  necessarily  be  whether  they  have 
omitted  that  care  which  men  of  common  prudence  take 
of  their  own  concerns.  To  require  more  would  be 
adopting  too  rigid  a  rule,  and  rendering  them  liable 
for  slight  neglect ;  while,  to  require  less,  would  be  re- 
laxing- too  much  the  obligation  which  binds  them  to 
vigilance  and  attention  in  regard  to  the  interests  of 
those  confided  to  their  care,  and  expose  them  to  liabil- 
ity for  gross  neglect  only,  which  is  very  little  short  of 
fraud  itself."  In  Appeal  of  Spering-,  71  Pa.  St.  11, 
Mr.  Justice  Sharswooc  said  :  "They  [directors] 
can  only  be  reg-arded  as  mandataries, — persons  who 
have  gratuitously  undertaken  to  perform  certain 
duties,  and  who  are  therefore  bound  to  apply  ordinary 
skill  and  diligence,  but  no  more."  In  3  Thomp.  Corp. 
$i  4104,  the  author  says  :  "While  a  class  of  decisions 
places  the  liability  of  directors  under  this  head  on  a 
ground  more  favorable  to  them,  by  restraining*  it  to 
cases  of  gross  and  habitual  neg-lig-ence,  nonattendance, 
and  inattention  to  their  duties,  yet  none  of  the  decisions 
exact  more  than  reasonable  business  knowledge  and 
skill,  strict  g-ood  faith,  and  a  reasonable  measure  of 
care  and  diligence,  under  the  circumstances  of  the  par- 
ticular case."  And  in  section  4106  he  says:  "It  is 
plain  that  the  expression   'g-ross  negligence'  is  loosely 


550  OFFICERS  [vol  I 

Warren  v.  Robison 

used  in  many  of  the  judicial  decisions,  and  that  it  is 
sometimes  used  as  the  mere  antithesis  of  a  'want  of 
ordinary  care.'  "  Hun  v.  Car}^  82  N.  Y.  65  ;  Society 
V.  Underwood,  9  Bush,  609. 

Evident!}'  persons  who,  as  directors,  assume  control 
of  a  banking-  institution  must  exercise  such  a  deg-ree  of 
care,  skill,  and  dilig-enceas  is  required  by  the  situation 

and  nature  of  the  business.  By  taking-  such 
Kim'torl.^*"'^      positions,  althoug-h    without   compensation, 

directors  invite  confidence  that  they  possess 
at  least  ordinar}'  knowledg-e  and  skill,  and  that  they 
will  do  all  that  men  of  reasonable  prudence  and  caution 
ought  to  do  to  protect  the  interests  of  stockholders  and 
depositors,  or  those  dealing-  with  the  institution.  The 
public,  therefore,  have  a  rig-ht  to  suppose  that  they 
are  men  of  hig-h  character  for  integrity,  of  reasonably 
sound  judg-ment,  and  of  such  g-ood  business  sense  as  is 
necessary  to  conduct  the  affairs  of  the  bank  wisely  and 
with  reasonable  safety.  Acting-  upon  this  supposition, 
the  public  trust  their  deposits  with  the  bank  in  the 
confidence  that  the  important  duty  of  manag-ement  and 
direction  will  be  discharg-ed  by  the  directors.  The 
directors,  however,  ought  not  to  be  held  to  the 
hig-hest  deg-ree  of  care  and  dilig-ence,  for  that  might 
prevent  men,  whose  unspotted  reputation  and  g-ood 
business  judg-ment  would  g-ive  character  and  sta- 
bility to  the  institution,  from  accepting-  such  posi- 
tions ;  nor  should  they  be  held  to  the  slig-htest 
deg-ree,  for  that  would  have  a  tendency  to  destroy'  public 
confidence,  and  few  men  would  be  willing-  to  deposit 
their  money  with  the  bank.  The  rule  most  in  harmony 
with  the  character  and  well-being-  of  such  an  institution 
appears  to  be  that  the  directors,  in  administering-  its 
affairs,  must  exercise  ordinary  care,  skill,  and  diligence. 
Under  this  rule,  it  is  necessary  for  them  to  g-ive  the 
business  under  their  care  such  attention  as  an  ordinarily 
discreet  business  man  would  g-ive  to  his  own  concerns 
under  similar  circumstances,  and  it  is  therefore  incum- 
bent upon  them  to  devote  so  much  of  their  time  to  their 
trust  as  is  necessary  to  familiarize  them  with  the  busi- 


B  CAS]  OFFICERS  551 

Warren  v.  Robison 

ness  of  the  institution,  and  to  supervise  and  direct  its 
operations.  That  the  board  of  directors  can  leave  the 
manag-ement  of  the  banking-  business  to  the  executive 
officers,  and  then  when,  throug-h  carelessness  and 
mismanagement,  disaster  to  the  stockholders  and  credit- 
ors ensues,  avoid  liability,  on  the  g-round  that  they  did 
not  know  of  the  unfortunate  transactions,  and  were 
ignorant  of  the  business,  is  a  notion  which  must  be 
repudiated.  If,  hov^'ever,  directors,  acting"  in  g"ood 
faith,  and  with  reasonable  care,  skill,  and  dilig^ence, 
nevertheless  fall  into  a  mistake,  either  of  law  or  fact, 
they  vvill  not  be  liable  for  the  consequences  of  such 
mistake.  Bearing  upon  the  g-eneral  subject  herein 
discussed  is  the  very  instructive  case  of  Charitable 
Corp.  V.  Sutton,  2  Atk.  400,  where  the  action  was 
broug-ht  for  relief  against  the  defendants,  committeemen 
and  other  officers  of  a  corporation,  for  breaches  of  trust, 
fraud,  and  mismanagement,  and  in  which  were  involved 
questions  of  the  liability  of  directors.  Among  the 
objects  of  the  corporation  was  that  of  banking-  with 
notes  payable  on  demand  within  the  amount  of  the 
stock,  and  of  lending-  money  on  pledg-es,  etc.  Among- 
the  thing's  complained  of  was  a  method  of  advancing- 
money  several  times  upon  old  pledges,  which  were  not 
worth  more  than  the  first  sum  lent,  or  g-iving-  credit 
upon  imaginar}^  pledg-es.  Under  the  charg-e  of  crassa 
ncgligoitia,  the  breaches  of  duty,  among-  others,  com- 
plained of,  were  nonattendance  of  committeemen  or 
directors  upon  their  employment,  never  once  inspecting- 
the  warehouse  to  see  what  number  of  real  pledg-es  were 
there,  and  putting-  the  whole  power  into  the  hands  of 
others.  Lord  Chaxcellor  Hardwicke,  conceding 
that  the  employment  was  not  one  affecting  the  g-overn- 
ment,  said  :  "I  take  the  employment  of  a  director  to 
be  of  a  mixed  nature  ;  it  partakes  of  the  nature  of  a 
public  office,  as  itarises  from  the  charter  of  the  crown. 
*  *  *  Therefore  committeemen  are  most  properly 
agents  to  those  who  employ  them  in  the  trust,  and  who 
empower  them  to  direct  and  superintend  the  affairs  of 
the  corporation.     In  this  respect  they  may  be  g-uilty  of 


552  OFFICERS  [vol  1 

Warren  v.  Robison 

acts  of  commission  or  omission,  of  malfeasance  or  non- 
feasance." Referring-  to  malfeasance  or  nonfeasance, 
the  chancellor  said  :  "To  instance,  in  nonattendance  : 
If  some  persons  are  g"uilty  of  gross  nonattendance,  and 
leave  the  manag-ement  entirely  to  others,  they  may  be 
g-uilty  by  this  means  of  the  breaches  of  trust  that  are 
committed  by  others.  By  accepting-  a  trust  of  this  sort, 
a  person  is  oblig-ed  to  execute  it  with  fidelity  and 
reasonable  dilig-ence,  and  it  is  no  excuse  to  say  that  they 
had  no  benefit  from  it,  but  that  it  was  merely  honorary  ; 
and  therefore  the}^  are  within  the  case  of  common 
trustees.  Another  objection  has  been  made  that  the 
court  can  make  no  decree  upon  these  persons  which  will 
be  just,  for  it  is  said  every  man's  nonattendance  or 
omission  of  his  duty  is  his  own  default,  and  that  each 
particular  person  must  bear  such  a  proportion  as  is 
suitable  to  the  loss  arising-  from  his  particular  neg-lect. 
which  makes  it  a  case  out  of  the  power  of  this  court. 
Now,  if  this  doctrine  should  prevail,  it  is  indeed  laying- 
the  ax  to  the  root  of  the  tree.  But  if,  upon  inquiry 
before  the  master,  there  should  appear  to  be  a  supine 
neg-lig-ence  in  allot  them,  by  w^hich  ag-ross  complicated 
loss  happens,  I  will  never  determine  that  they  are  not 
all  g-uilty.  Nor  will  I  ever  determine  that  a  court  of 
equity  cannot  lay  hold  of  every  breach  of  trust,  let  the 
person  be  g-uilty  of  it  either  in  a  private  or  public 
capacity."' 

In  Land  Credit  Co.  of  Ireland  v.  Lord  Fermoy,  5 
Ch.  App.  763,  Lord  Hx\therley  said  :  "I  am  exceed- 
ing-ly  reluctant  in  any  way  to  exonerate  directors  from 
performing-  their  duty,  and  I  quite  ag-ree  that  it  is  their 
duty  to  be  awake,  and  that  their  being- asleep  would  not 
exempt  them  from  the  consequences  of  not  attending- to 
the  business  of  the  company.  But  we  must  look  at  the 
nature  of  the  businessof  the  company."  So,  in  Brig-g-s 
V.  Spaulding-,  141  U.  S.  132,  165,  11  Sup.  Ct.  935,  a  case 
>on  which  the  respondents  appear  to  rely,  Mr.  Chief 
Justice  Fuller,  speaking- for  the  court,  said  :  "With- 
out reviewing"  the  various  decisions  on  the  subject,  we 
hold   that   directors  must  exercise  ordinary    care  and 


B  CAS]  OFFICERS  553 

Warren  z'.  Robison 

prudence  in  the  administration  of  the  affairs  of  a  bank, 
and  that  this  includes  something-  more  than  officiatin^f 
as  fig-ureheads.  They  are  entitled,  under  the  law,  to 
commit  the  bankino-  business,  as  defined,  to  their  duly- 
authorized  officers  ;  but  this  does  not  absolve  them  from 
the  duty  of  reasonable  supervision  ;  nor  oug-ht  they 
be  permitted  to  be  shielded  from  liability  because 
of  want  of  knowledjo-e  of  wrong-doing-,  if  that  igno- 
rance is  the  result  of  gross  inattention."  In  that 
case  the  law  seems  to  be  stated  with  much  liberality 
in  favor  of  directors,  and  it  seems  a  very  liberal 
application  of  the  law  to  the  facts  was  made  in  favor 
of  the  defendants,  and  four  of  the  justices  dissented  ; 
but  still  the  conclusion  was  reached  that  directors 
must  exercise  ordinar\^  care  and  prudence,  holding- 
that  the  committing-  of  the  banking  business  by  them  to 
the  officers  does  not  absolve  the  directors  from  rea- 
sonable supervision.  In  Cutting-  v.  Marlor,78  N.  Y.  459, 
Mr.  Chief  Justice  Church  said  :  "A  corporation 
is  represented  by  its  trustees  and  managers;  their  acts 
are  its  acts,  and  their  ueg-lect  its  neglect.  The  em- 
ployment of  ag-ents  of  good  character  does  not  discharge 
their  whole  duty.  It  is  misconduct  not  to  do  this;  but, 
in  addition,  they  are  required  to  exercise  such  super- 
vision and  vig-ilance  as  a  discreet  person  would  exercise 
over  his  own  affairs.  The  bank  mig-ht  not  be  liable 
for  a  single  act  of  fraud  or  crime  on  the  part  of  an 
officer  or  agent,  while  it  would  be  for  a  continuous 
course  of  fraudulent  practice;  especially  those  so  openly 
committed  and  easily  detected  as  these  are  shown  to 
have  been.  Here  were  no  supervision,  no  meetiug-s, 
no  examination,  no  inquiry."  So,  in  Williams  t'.  Mc- 
Kay, 49  N.  J.  Eq.  189,  where  the  observations  of  Lord 
Chancellor  Hardwicke  and  Lord  Hatherley 
were  referred  to  with  approval,  Mr.  Chief  Justice 
Beasley,  delivering  the  opinion  of  the  court,  said  :  "I 
entirely  repudiate  the  notion  that  this  board  of  man- 
ag-ers  could  leave  the  entire  affairs  of  this  bank  to  cer- 
tain committeemen,  and  then,  whed  disaster  to  the 
innocent   and     helpless   ccstiiis     que   tnistcut   ensued. 


554  OFFICERS  [vol  I 

Warren  v.  Robison 

stifle  all  complaints  of  their  neg-lects  b}^  sayingf  we  did 
not  do  these  thing's,  and  we  know  nothing- about  them." 
And  again  he  said  :  "The  misconduct  in  question  was 
manifested  in  frequent,  g-laring-  instances,  and  it  is  not 
easy  to  imagine  how  they,  or  some  of  them,  failed  to 
be  discovered  by  these  boards  of  manag-ers  on  the  sup- 
position which,  in  their  favor  the  law  will  make,  that 
they  exercised  their  office  in  this  respect  with  a  reason- 
able deg-ree  of  vigilance.  The  neglectful  acts  in  ques- 
tion cannot  be  regarded  by  the  court  as  isolated  in- 
stances; for  they  run  throug'h  the  whole  period  of  the 
life  of  this  institution,  and  thus  evince  a  systematic 
and  habitual  disregard  of  the  directions  of  the  com- 
pany's charter,  and  a  very  striking-  indifference  with 
reg"ard  to  the  security  of  the  money  held  in  trust  bv 
them." 

In  Hun  f.  Gary,  82  N.  Y.  65,  where  the  question  of 
the  degree  of  vig-ilance  to  be  exercised  by  the  directors 
of  a  savings  bank  was  involved,  Mr,  Justice  Earl, 
speaking  for  the  court,  said  :  "Few  persons  would 
be  willing  to  deposit  money  in  savings  banks,  or  to  take 
stock  in  corporations,  with  the  understanding-  that  the 
trustees  or  directors  were  bound  only  to  exercise  slight 
care,  such  as  inattentive  persons  would  give  to  their 
own  business  in  the  management  of  the  large  and 
important  interests  committed  to  their  hands.  When 
one  deposits  money  in  a  savings  bank,  or  takes  stock  in 
a  corporation,  thus  devesting  himself  of  the  immediate 
control  of  his  property,  he  expects,  and  has  the  right 
to  expect,  that  the  trustees  or  directors,  who  are  chosen 
to  take  his  place  in  the  management  and  control  of  his 
property,  will  exercise  ordinar}^  care  and  prudence  in 
the  trusts  committed  to  them, — the  same  degree  of 
care  and  prudence  that  men  prompted  by  self-interest 
generally  exercise  in  their  own  affairs.  When  one  vol- 
untarily takes  the  position  of  trustee  or  director  of  a 
corporation,  g-ood  faith,  exact  justice,  and  public  policy 
unite  in  requiring-  of  him  such  a  degree  of  care  and 
prudence,  and  it  is  a  gross  breach  of  duty — c'rassa  )ic§'- 
ligentia — not  to  bestow  them,"    So,  in  3  Thomp.  Corp. 


B  CAS]  OFFICERS  555 

Warren  v.  Robison 

S  4108,  with  reference  to  the  liability  of  directors  for 
tiejjflig-ent  ig-uorance  of  corporate  affairs,  it  is  said: 
"The  true  theory  disreg-ards  the  subtile  and  impracti- 
cable distinction  between  ordinary  neg-lig^ence  and  inat- 
tention and  o-ross  neg^ligfence  and  inattention,  and  holds 
directors  responsible  for  not  knowing-  that  of  which 
they  had  the  means  of  knowledo-e,  and,  while  relieving- 
them  from  the  responsibilities  of  insurers,  ascribes 
liability,  on  the  g-round  of  ig-norauce  of  that  which 
could  have  been  discovered  by  that  g-ood  business  dili- 
gence which  is  incumbent  upon  them."  1  Morse, 
Banks,  §§  116,  1^5,  126,  128;  1  Mor.  Priv.  Corp.  §>$ 
552-562  ;  1  Reid,  Corp.  Finance,  §  181  ;  3  Thomp. 
Corp.  S  4113  ;  2  Am.  &  Eng-.  Enc.  Law,  114-116  ;  Gib- 
bons V.  Anderson,  80  Fed.  345;  Marshall  7'.  Bank  (Va.) 
8  S.  E.  586;  Houston  v.  Thornton,  122  N.  C.  365,  29 
S.  E.  827;  Mining  Co.  v.  Ryan,  42  Minn.  1%,  44  N. 
W.  56;  Iron  Co.  :;.  Parish,  42  Md.  598;  Ackerman  v. 
Halsey,  37  N.  J.  Eq.  356;  Delano  v.  Case,  121  111.  247, 
12  N.  E.  676;  Martin  r.  AVebb,  110  U.  S.  7,  3  Sup.  Ct. 
428;  Bank  v.  Bosseiux,  3  Fed.  817;  Brannin  v.  Loving-, 
82  Ky.  370;  Stephens  v.  Bank,  88  Pa.  St.  157. 

Having-  thus,  in  the  ligfht  of  authority,  considered  the 
deg-ree  of  care,  skill,  and  diligence  which  directors  of 
a  bank  must  exercise  to  avoid  liability  for  acts  of  com- 
mission or  omission  which  result  in  loss  to 
the  institution,  its  stockholders  or  creditors,  Ki"/-i'i!i-'' 
it  now  becomes  important  to  ascertain  Jiji'ty -Prima 
whether,  under  the  evidence  in  this  case  as 
it  now  stands,  the  defendant  directors  are  shown  g-uilty 
of  such  neg-ligence  as  will  render  all  or  any  of  them  liable 
for  the  losses  occasioned  by  the  transactions  of  which  the 
appellants  complain,  and  the  alleg-ed  liability  is  such 
that  facts  must  be  examined  as  to  each  of  them.  The 
testimony  shows  that  the  defendant  Beeman  was  elected 
director  and  president  of  the  bank  in  January,  1893. 
But  one  of  the  loans  complained  of  was  made  during- 
his  term  of  office,  and  that  was  the  one  to  the  Cache 
Valley  Land  &  Canal  Company,  which  was  made  with- 
out  his   knowledg-e     or    consent.        After    he    became 


556  OFFICERS  [vol  I 

Warren  i'.  Robison 

director  and  president,  he  was  for  some  time  necessa- 
rily absent  from  the  state.  He  attended  various  meet- 
ing's of  the  board,  advised  with  the  manag-er  and 
cashier,  examined  the  books,  notes,  accounts,  and  bills 
receivable  and  payable,  and  about  the  middle  of  August 
discovered  the  $10,000  loan  of  the  canal  company. 
Thereupon,  it  appears,  he  required  a  statement  of  the 
affairs  of  the  bank  from  the  manager,  and  upon  receiv- 
ing- the  same,  and  making-  an  examination  of  it,  and 
submitting-  it  to  another  banker  for  advice,  he,  on 
August  23,  1893,  wrote  a  letter  to  the  manag-er  in  which 
he,  in  effect,  deplored  the  condition  of  the  bank,  criti- 
cised the  manner  of  making-  loans,  especially  to  officers  of 
the  institution,  instancing-  the  $28,000  loan  to  the 
former  president,  stated  that  no  loan  should  be  made 
to  an  officer,  even  with  ample  security,  without  the 
unanimous  consent  of  the  board  of  directors,  and  main- 
tained that  the  board  should  vote  on  all  loans  above  a 
certain  amount,  and  that  overdrafts  should  be  put  in 
the  form  of  notes.  In  fact,  the  letter  is  such  as  would 
naturally  come  from  a  discreet  business  man,  and 
indicates  a  desire  on  the  part  of  the  writer  to  institute 
a  prudent  and  diligent  administration  of  the  affairs  of 
the  institution.  The  evidence  fails  to  show  that  the 
disastrous  consequences  to  the  bank,  stockholders,  and 
creditors  could  have  been  avoided,  even^by  the  highest 
degree  of  care  and  vig-ilance,  after  he  assumed  the 
duties  of  office.  Under  these  circumstances,  the  court 
would  not  have  been  warranted  in  holding  him  liable, 
and  therefore,  as  to  him,  the  nonsuit  was  properly 
g-ranted.  We  are  also  of  the  opinion  that  the  nonsuit 
was  properly  g-ranted  as  to  defendants  Mag-uire  and 
Perkins.  It  appears  they  were  elected  directors  about 
July,  1893,  after  all  the  loans  complained  of  had  been 
made,  and  the  plaintiffs  failed  to  make  ^  f>ri ma  facie 
showing-  that  the  crisis  which  came  a  few  months  later 
was  due  to  any  neg-ligence  committed  by  them,  or  that 
it  could  have  been  averted  by  any  care  or  vigilance 
which  they  could  have  exercised. 

We  are  further  of  the  opinion  that  the  plaintiffs  failed 


B  CASj  OFFICERS  557 

Warren  v.  Robison 

to  make  out  ■&.  priuia  facie  case  as  to  defendant  Arm- 
strong", the  receiver.  The  defendant  Robison,  it 
appears,  was  not  properly  before  the  court  ;  hence 
his  case  calls  for  no  consideration  from  us.  Respectinof 
the  remaining*  defendants,  the  ruling"  of  the  court  in 
g"ranting'  the  nonsuit  presents  a  much  more  serious 
question,  under  the  evidence.  As  to  them,  the  testimony 
appears  to  show  a  different  state  of  facts.  Defendant 
Spencer  was  elected  as  a  director  and  member  of  the 
executive  committee  in  January,  1892.  It  was  the 
duty  of  the  evecutive  committee  to  make  aiid  pass  on 
loans.  Testifying"  as  a  witness,  he  said  that  he 
examined  the  Corey  loan  of  $28,000,  and  thoug"ht  that 
most  of  it  was  made  before  he  was  director.  He  knew 
that  Corey  was  an  officer  of  the  bank,  but  did  not 
recollect  as  to  any  security  for  the  loan.  He  was  aware 
of  the  Gillette  &  Co.  transaction,  but  did  not  know 
whether  the  debt  was  for  loans  or  overdrafts.  He 
knew  what  his  duties  were  as  a  member  of  the  executive 
committee.  The  witness  said:  "The "  executive 
committee  met  every  two  or  three  months.  I  have 
explained  that  the  loaning"  was  principally  intrusted 
to  Robison  and  Broug"h.  Frequently,  w^hen  I  was  in 
the  bank,  Robison  would  ask  me  what  I  thoug"ht  about 
certain  loans.  I  don't  know  whether  I  was  an  officer 
of  the  Junction  City  Driving"  Park  or  not.  I  was  a 
director,  I  believe.  The  Eccles  Lumber  Compan}'  is 
a  corporation.  I  am  a  member  of  that.  We  attached 
the  driving"  park.  I  don't  know  when  the  loan  was 
made  to  the  driving"  park,  or  whether  they  had  any 
personal  property  at  the  time  or  not.  We  didn't 
examine  the  books  of  the  bank  very  often.  We  gen- 
erally looked  at  the  notes,  and  counted  the  money  on 
hand,  and  looked  at  the  cash  book  as  to  the  amount 
they  should  have.  We  didn't  audit  the  books  as  a 
rule.  We  never  examined  them."  The  witness  was 
on  Helfrich's  bond,  but  did  not  know  that  he  had 
overdrawn,  and  said  they  g"ave  the  privileg"e  to  over- 
draw accounts  to  no  one.  Matters  of  loans  were 
g"enerally  left  with  the  managfer  and  cashier.     Defend- 


558  OFFICERS  [vol,  I 

Warren  v.  Robisoii 

ant  Murphy  became  director  in  1891,  and  as  a  witness 
said  :  "I  know  most  of  the  loans  complained  of  in  this 
case.  I  had  nothincf  to  do  with  them  at  the  time  of  the 
making-  of  the  loans.  I  knew  nothing-  about  them  at 
the  time.  I  only  know  what  I  have  heard  since  about 
the  condition  of  the  Cache  Valley  Land  &  Canal 
Company  transaction  and  the  loan  made  to  the  Cache 
Valley  Land  &  Canal  Company,  I  didn't  pass  on  the  loan 
at  the  time  it  was  made,  or  at  the  time  of  the  renewal." 
Defendant  Kuhn  assumed  the  duties  of  director  in 
January,  1891.  As  a  witness,  he,  in  part,  said:  "I 
was  one  of  the  executive  board  of  the  bank.  I  don't 
believe  that  as  a  member  of  that  board  I  passed  upon 
the  Anderson  Pressed-Brick  Company  loan.  I  was  in 
the  bank  quite  often.  I  ver}^  seldom  looked  at  the 
books.  I  had  an  opportunity  of  looking  at  them  at  any 
time.  I  looked  at  the  daily  blotter  once  in  a  while. 
During-  all  the  time  I  was  a  director  I  was  a  member  of 
the  executive  board.  I  remember  that  Corey  got  some 
money  there.  I  passed  upon  the  loan  at  the  time.  I 
think  it  was  $2,500  that  he  wanted.  I  have  been  in 
business  here  16  or  18  years.  I  have  a  man  to  keep 
our  books.  I  do  not  understand  bookkeeping-.  I  could 
probably  find  an  account  if  I  took  time  for  it.  I  knew 
that  the  bank  was  discounting  paper  and  making-  loans. 
I  knew  its  general  class  of  business."  He  was  aware 
of  the  Barbour  shortage  and  other  transactions  of 
which  complaint  is  made.  The  loan  to  the  Cache 
Valley  Land  &  Canal  Company  was  made  while  he 
was  absent  from  the  state.  Sometimes  he  was  absent 
on  business  two  or  three  months  at  a  time.  He  heard 
of  and  noticed  nothing-  to  arouse  suspicion,  and  had 
confidence  in  the  manager.  So,  the  defendant  Wells 
testified  :  "I  don't  know  about  the  Cache  Valley 
note  transaction.  I  never  looked  it  up,  or  had  anything 
to  do  with  it.  I  never  examined  the  books  of  Ihe 
bank,  or  counted  the  cash.  I  remember  when  Barbour 
was  accused  of  being  short  in  his  accounts.  It  was 
at  the  time  of  Robison  and  Corey  giving  their  note. 
I  was  a  director  at  the  time.     Robison  and  Corey   told 


B  CAS]  OFFICERS  559 

Warren  v.  Robison 

me,  and  g-ave  the  directors  to  understand,  that  they 
would  stand  ofood  for  that  shortag-e.  *  *  *  I  was 
one  of  the  executive  board  appointed  in  1891.  As  a 
member  of  the  board,  I  did  not  pass  on  any  of  the 
loans  at  that  time  ;  nor  did  any  of  the  board  in  my 
presence  pass  on  any  loan.  I  was  in  some  of  the 
meeting-s.  Kuhn,  Spencer,  and  Cahoon  were  the 
other  members  of  the  committee,  I  think.  When  I 
was  a  member  of  the  executive  board  I  never  passed 
on  any  loans.  I  left  the  whole  matter  to  Helfrich  and 
Robison,  and  deleg-ated  my  power  to  them."  On 
cross-examination  the  witness  said  :  "I  was  one  of  the 
first  directors,  and  was  appointed  upon  the  executive 
board  to  pass  upon  the  sufficiency  of  securities  and 
such  as  that.  I  attended  meetings  and  had  stock  in 
the  bank.  We  did  not  have  the  list  of  notes,  or  the 
note  pouch  placed  upon  the  table.  The  books  were 
there,  but  I  never  was  at  a  meeting  where  they  exam- 
ined any  of  the  notes.  I  knew  what  my  duties  were, 
and  understood  the  purpose  of  my  appointment.  I 
knew  that  the  stockholders  were  looking-  to  me  to 
protect  their  interests  ;  but  I  did't  do  it.  I  just  let 
it  g*o  by  default.  I  don't  suppose  the  other  members 
of  the  board  were  as  derelict  as  I  was." 

The  testimony  of  defendant  Corey  is,  in  part,  as 
follows:  "I  was  the  first  president  of  the  Citizens' 
Bank.  I  do  not  think  that  J.  P.  Barbour,  the  first 
cashier,  gave  a  bond  while  acting  as  such.  I  did  bor- 
row money  in  March,  1893,  and  at  different  times,  from 
the  bank,  while  president.  I  don't  remember  how 
much.  I  did  not  g-ive  any  security  at  that  time.  Robi- 
son passed  on  the  loan.  I  don't  remember  an3'thing- 
about  a  S3, 700  note.  I  do  remember  about  an  indebt- 
edness of  mine  and  the  Corey  Bros,  for  $28,000.  We 
borrowed  the  money  from  the  bank  from  time  to  time, 
and  would  take  up  one  note  and  g-ive  another  one  at 
different  times.  It  migj-ht  be  that  I  got  money  on  my 
individual  note;  I  don't  remember.  We  left  our  bank 
stock  as  security.  I  can't  recollect  the  dates  of  the 
notes,  but  I  know-  that  we   borrowed  for  the  company 


560  OFFICERS  [vol  I 

Warren  v.  Robison 

there.  I  think  the  ag-greg'ate  was  somethino-  like 
S28,000.  The  company  failed  in  the  fall  of  1892,  about 
October  or  November.  We  owed  the  First  National 
Bank  at  that  time  in  the  neig"hborhood  of  $70,000.  We 
g-ave  them  ofood  real-estate  security  as  far  as  it  went.  I 
did  not  make  any  effort  to  g-et  security  for  the  Citizens' 
Bank.  I  did  not  borrow  $8,000  of  them  after  we  failed. 
As  president  of  the  bank,  I  believe  I  was  elected  as  a 
director  of  the  Cache  Valley  Land  &  Canal  Compan}'. 
I  did  not  know  anything- about  the  canal  company  trans- 
action. The  truth  is  I  was  only  nominal  president 
of  the  bank.  I  presided  at  meetings,  and  every  day  I 
was  in  the  city  I  looked  around  after  the  interests  of 
the  bank.  I  was  interested  in  the  Junction  City  Driv- 
ing^-Park  Association,  and  was  president  of  it.  I  don't 
know  much  about  the  loans  or  overdrafts  of  the  driving-- 
park  association.  I  don't  know  whether  or  not  the 
directors  approved  of  the  loans  to  the  Anderson 
Pressed-Brick  Company.  I  knew  in  a  g-eneral  way 
that  they  were  making-  loans.  I  did  not  know  anything- 
about  the  details  of  the  loans  at  the  time  they  were 
made.  I  wasn't  manag-er  or  anything-  of  that  kind.  I 
couldn't  tell  you  how  many  meeting-s  I  presided  over. 
I  never  missed  a  meeting-  while  I  was  in  the  city,  that 
I  know  of.  Sometimes  they  held  two  or  three  meet- 
ing's a  month,  and  sometimes  one."  The  defendant 
Schramm,  another  director,  gave  testimony  as  follows: 
"I  was  a  stockholder  from  the  inception  of  this  bank 
down  to  December,  1893.  I  was  g-enerally  at  all  of  the 
meeting-s  of  the  directors  of  the  Citizens'  Bank.  I 
couldn't  say  how  many  meeting-s  I  would  attend  during- 
the  year.  I  had  a  very  slig-ht  acquaintance  with  Bar- 
bour. The  directors  requested  him  to  furnish  a  bond 
shorth^  after  the  bank  was  organized.  The  directors 
that  were  meeting-  at  that  time  were  Corey,  Robison, 
Cahoon,  Keck,  Wurtelle,  and  Robinson.  I  can't  think 
of  the  others.  I  did  not  make  a  personal  examination 
of  the  books  of  the  bank  during-  the  administration  of 
Barbour.  I  knew  about  the  Corev  loan  when  it  was 
made.     I  can't  g"ive  you  the  date.     After  they  went  to 


B  CAS]  OFFICERS  561 

Warren  v.  Robison 

the  wall,  the  manag-er  was  requested  by  the  directors 
to  o^et  what  security  he  could  for  the  claim.  I  didn't 
know  when  the  $10,000  loan  was  made  to  the  canal 
company.  I  knew  nothing-  at  all  of  the  transaction 
until  after  it  was  completed.  I  can't  remember  when 
I  first  learned  of  the  transaction.  I  remember  Kuhn 
saying":  'Come  over  to  the  bank;  there  is  a  loan  there 
we  want  to  consider.'  We  went  over,  and  told  Robison 
that,  if  there  was  anything*  being-  loaned  where  the 
bank  would  become  indebted,  we  wanted  him  to  fix  up 
security  for  the  bank.  This  was  some  time  in  the 
summer  of  1893.  I  don't  understand  the  bank  style  of 
bookkeeping-.  I  was  one  of  the  executive  committee 
after  January,  1893.  I  did  the  best  I  could  as  director. 
The  duties  of  the  executive  committee  were  passing- 
upon  the  loans  and  the  property,  and  the  g-eneral  man- 
ag-ement  of  the  bank.  We  didn't  consent  to  any  loans 
after  I  became  one  of  the  executive  committee."  The 
witness  knew  of  the  various  transactions  complained  of,, 
and  had  confidence  in  the  raanag-er  and  cashier.  The 
defendant  Broug-h  was  cashier,  and  some  of  his  state- 
ments in  his  testimony  are  as  follows  :  "I  was 
nominally  cashier  of  the  Citizens'  Bank.  I  don't  con- 
sider that  I  performed  all  the  duties  of  a  cashier^ 
because  there  was  a  mauag-er  of  the  bank.  He  per- 
formed many  of  the  duties  that  a  cashier  would  perform 
if  there  was  no  manag-er.  I  was  not  selected  as  man- 
ager. I  was  elected  at  a  board  meeting-  of  the  directors- 
to  act  as  cashier,  at  a  salary.  I  consider  that  when  I 
went  into  the  bank  I  made  a  contract  with  the  directors 
restricting-  my  liability.  They  made  a  contract  with 
me  that  I  was  not  to  be  charg-ed  with  responsibility  or 
charg-ed  with  passing-  upon  securities.  That  contract 
was  in  writing-.  With  it  is  a  proposition  from  six  of 
the  directors  asking-  me  to  become  cashier.  I  was  a 
member  of  the  Cache  Valley  Land  &  Canal  Compan}^. 
I  did  not  make  a  loan  to  that  company.  I  did  know  of 
a  loan  being- made  to  the  company.  Mr.  Robison  made 
the    loan.     I    did   not  know  of   it  until  evening-  came, 

B  CAS — 36 


o62  OFFICERS  [vol  I 

Warren  v.  Robison 

■and  we  made  up  our  books.  I  did  not  find  that  the 
cash  was  510,000  short.  There  was  a  copy  of  the 
note  that  was  sent  to  Chicao-o  lying-  among-  the 
checks  and  deposit  slips.  The  note  was  taken  in 
favor  of  the  bank.  I  saw  the  note  after  it  came 
back  from  Chicag-o.  Mr.  Robison  sent  it.  It  was 
returned  on  the  12th  day  of  June.  It  was  charged  to 
-our  account  on  the  eig-hth  day.  This  was  in  the 
year  1893.  Prior  to  the  returning-  of  the  note  from 
Chicago,  no  minute  entry  was  made  upon  the  books  of 
the  bank,  because  there  was  a  copy  of  the  note  in  the 
pouch."  When  the  bank  made  its  assig-nment,  the 
witness  became  the  assig-nee. 

The  evidence  presented  in  the  record  is  quite  volumi- 
nous, and  further  reference,  in  detail,  is  not  deemed 
necessary.  A  careful  examination  of  all  the  proof  im- 
pels the  conclusion  that,  at  least,  some  of  the  trans- 
actions of  which  the  plaintiffs  complain  are,  to  say  the 
least,  not  such  as  discreet  business  men  oug-ht  to 
consummate.  The  overdrafts  and  loans  to  officers,  the 
larg-e  loans  to  individual  borrowers,  in  some  instances 
without  security,  as  shown  by  the  evidence,  are  of 
such  a  character  as  oug-ht  to  have  sug-g-ested  to  the 
directors  the  depletion  of  the  vaults  of  the  bank  and  the 
working  of  its  ruin.  Some  of  the  directors,  as  is  indi- 
cated by  their  statements  on  the  witness  stand,  seem 
to  have  acted  upon  the  theory  that,  by  the  appointment 
-of  executive  officers  in  whom  tlie}^  had  confidence  and 
who  were  reputed  honest,  they  discharg-ed  their  duties 
as  directors,  and  that  the  burdens  and  responsibility  of 
management  and  supervision  were  then  shifted  to  such 
officers.  As  we  have  seen,  such  is  not  the  law.  The 
directors  were  not  mere  ornaments  to  the  bank  to  lure 
public  confidence.  When  they  became  directors,  the 
law  cast  upon  them  the  important  duties  of  supervision 
vand  direction,  which  they  could  not  delegate  to  the 
^executive  officers  ;  and  therefore  the  stockholders  and 
depositors  had  the  right  to  intrust  the  institution  with 
"their  money,  in  confidence  that  the  directors  would 
perform   those  duties.     When   sued   for  losses    which 


B  CAS]  OFFICERS  563 

Warren  v.  Robison 

resulted  from  careless  or  unlawful  acts  and  unfortu- 
nate transactions,  they  can  never  set  up  as  a  defense 
that  they  did  not  examine  the  books  or  accounts  of  the 
bank,  knew  nothing-  about  the  loans  or  discounts,  were 
ignorant  of  banking-  business,  or  that  they  intrusted 
the  manag-ement  and  supervision  of  the  business  to  the 
executive  officers,  in  whom  they  had  confidence.  The 
welfare  of  the  public  and  the  interests  of  banking-  insti- 
tutions alike  forbid  this. 

Mr.  Morawetz,  in  his  Treatise  on  the  Law  of  Pri- 
vate Corporations,  in  section  554,  says  :  "Directors 
are  not  merely  bound  to  be  honest  ;  they  must  also  be 
diligent  and  careful  in  performing  the  duties  which 
they  have  undertaken.  They  cannot  excuse  impru- 
dence on  the  ground  of  their  ignorance  or  inexperience, 
or  the  honesty  of  their  intentions  ;  and,  if  they  commit 
an  error  of  judgment  through  mere  recklessness  or 
want  of  ordinary  prudence  and  skill,  the  corporation 
may  hold  them  responsible  for  the  consequences." 
Marshall  v.  Bank,  85  Va.  676,  8  S.  E.  586. 

We  do  not  herein  assume  to  determine  the  ultimate 
rights  of  the  plaintiffs.  Whether  or  not  they  will 
finally  be  able  to  recover  for  any  of  the  transactions 
complained  of  will  perhaps  depend  largely  upon  the 
question  whether  or  not  they  themselves  have  been 
guilty  of  such  acts  and  conduct  respecting  these  trans- 
actions, and  the  management  of  the  bank,  as  will  pre- 
vent a  recovery  by  them.  We  simply  hold  that  the 
plaintiffs  have  established  a  prima  facie  case  against 
the  defendants  Brough,  Spencer,  Murphy,  Kuhn, 
Wells,  Schramm,  and  Corey  ;  and,  as  to  them,  the 
judgment  of  the  court  must  be  set  aside,  costs  to  abide 
the  result  of  the  action.  xAlS  to  defendants  Robison, 
Maguire,  Beeman,  Perkins,  and  Armstrong,  the  judg- 
ment of  nonsuit  is  affirmed,  with  costs  against  the 
plaintiffs.  The  cause  must  therefore  be  remanded  to 
the  court  below,  with  directions  to  proceed  in  accord- 
ance herewith.     It  is  so  ordered. 

Cherry,  District  Judge,  and  Baskin,  J.  concur. 


564  OFFICERS  [vol,  I 

Note 

Liability  of  Directors  for  Negligence  in  Supervision  of  Business. — 
The  ordinary  care  and  prudence  that  directors  of  national  banks 
must  exercise  includes  something-  more  than  officiating  as  mere 
figureheads.  They  are,  however,  entitled  to  commit  the  business  of 
the  bank  to  its  duly  authorized  officers  ;  but  this  does  not  absolve 
them  from  the  duty  of  reasonable  supervision,  nor  are  they  to  be 
permitted  to  be  shielded  from  liability  because  of  want  of  knowl- 
edge of  wrong  doing,  if  that  ignorance  is  the  result  of  gross  inatten- 
tion. Briggs  V.  Spaulding  ct  al.  141  U.  S.,  132,  33  Am.  &  Eng. 
Corp.  Cas.  420. 

Fuller,  C.  J.,  delivering  the  opinion  said  :  In  Percy  v.  Millau- 
don,  8  Mart.  (N.  S. ),  68,  which  has  been  cited  as  a  leading  case  for 
more  than  60  years,  the  supreme  court  of  Louisiana,  through 
Judge  PokTek,  declared  that  the  correct  mode  of  ascertaining 
whether  an  agent  is  in  fault  "is  by  inquiring  whether  he  neg- 
lected the  exercise  of  that  diligence  and  care  which  was  necessary 
to  a  successful  discharge  of  the  duty  imposed  on  him.  That  dili- 
g-ence  and  care  must  again  depend  on  the  nature  of  the  undertaking. 
There  are  many  things  which,  in  their  management,  require  the 
utmost  diligence  and  most  scrupulous  attention,  and  where  the 
agent  who  undertakes  their  direction  renders  himself  responsible 
for  the  slightest  neglect.  There  are  others  where  the  duties  im- 
posed are  presumed  to  call  for  nothing  more  than  ordinary  care  and 
attention,  and  where  the  exercise  of  that  degree  of  care  suffices. 
The  directors  of  banks,  from  the  nature  of  their  undertaking,  fall 
within  the  class  last  mentioned,  while  in  the  discharge  of  their 
ordinary  duties.  It  is  not  contemplated  by  any  of  the  charters  which 
have  come  under  our  observation,  and  it  was  not  by  that  of  the 
Planters'  Bank,  that  they  should  devote  their  whole  time  and  atten- 
tion to  the  institution  to  which  they  are  appointed,  and  g'uard  it 
from  injury  by  constant  superintendence.  Other  officers,  on  whom 
compensation  is  bestowed  for  the  employment  of  their  time  in  the 
affairs  of  the  bank,  have  the  immediate  management.  In  relation 
to  these  officers  the  duties  of  directors  are  those  of  control,  and  the 
neglect  which  would  render  them  responsible  for  not  exercising 
that  control  properly  must  depend  on  circumstances,  and  in  a  great 
measure  be  tested  by  the  facts  of  the  case.  If  nothing  has  come  to 
their  knowledge  to  awaken  suspicion  of  the  fidelity  of  the  president 
and  cashier,  ordinary  attention  to  the  afi'airs  of  the  institution  is 
sufficient.  If  they  become  acquainted  with  any  fact  calculated  to 
put  prudent  men  on  their  guard,  a  degree  of  care  commensurate 
with  the  evil  to  be  avoided  is  required,  and  a  want  of  that  care  cer- 
tainly makes  them  responsible." 

Spering's  Appeal,  71  Pa.  St.  11,  was  the  case  of  a  bill  filed  by 
Spering,  as  assignee  of  a  trust  company,  against  its  directors  and 
others,  to  compel  them  to  make  good  losses  .sustained  by  the  deposit- 
ors on  the  ground  of  fraudulent  mismanagement  of  the  affairs  of 
the  company  ;  and  Judge  Shakswood,  speaking  for  the  court,  said  : 
"It  is  by  no  means  a  well  settled  point  what  is  the  precise  relation 
which  directors  sustain  to  stockholders.  They  are,  undoubtedly, 
said  in  many  authorities  to  be  trustees,  but  that,  as  I  apprehend,  is 
only  in  a  general  sense,  as  we  term  an  agent  or  any  other  bailee 
intrusted  with  the  care  and  management  of  the  propertj'  of  another. 
It  is  certain  that  they  are  not  technical  trustees.  They  can  only  be 
regarded   as   mandataries, — persons  who  have  gratuitously   under- 


B  CAS]  OFFICERS  565 

Note 

taken  to  perform  certain  duties,  and  who  are  therefore  bound  to 
apply  ordinary  skill  and  dilig-ence,  but  no  more.  *  *  *  We  are 
dealing  now  with  their  responsibility  to  stockholders,  not  to  outside 
parties, — creditors  and  depositors.  It  is  unnecessary  to  consider 
what  the  rule  may  be  as  to  them.  Upon  a  close  examination  of  all 
the  reported  cases,  although  there  are  many  dicta  not  easily  recon- 
cilable, yet  I  have  found  no  judgment  or  decree  which  has  held  di- 
rectors to  account,  except  when  they  have  themselves  been  person- 
ally giJilty  of  some  fraud  on  the  coi-poration,  or  have  known  and 
connived  at  some  fraud  in  others,  or  where  such  fraud  might  have 
been  prevented  had  they  given  ordinary  attention  to  their  duties. 
I  do  not  mean  to  say  by  an3'  means  that  their  responsibility'  is 
limited  to  these  cases,  and  that  there  might  not  exist  such  a  case  of 
negligence,  or  of  acts  clearly  ultra  vires,  as  would  make  perfectly 
honest  directors  personally  liable.  But  it  is  evident  that  gentlemen 
selected  bj'  the  stockholders  from  their  own  body  ought  not  to  be 
judged  by  the  same  strict  standard  as  the  agent  or  trustee  of  a  pri- 
vate estate.  Were  such  a  rule  applied,  no  gentleman  of  character 
and  responsibility  would  be  found  willing  to  accept  such  places." 
And  see  Citizens'  Building  L.  &  S.  Assoc,  v.  Coriell,  34  N.  J.  Eq. 
383;  Hodges  v.  New  England  Screw  Co.,  1  R.  I.  312;  Wakeman  v. 
Dalle}',  51  N.  Y.  27.  It  was  in  this  aspect  that  Lord  HathEki.ey 
remarked  in  Land  Credit  Co.  i'.  Lord  Fermo}',  L.  R.  5  Ch.  763  : 
"Whatever  may  be  the  case  with  a  trustee,  a  director  cannot  be  held 
liable  for  being  defrauded.  To  do  so  would  make  his  position  intol- 
erable." And  the  same  view  is  expressed  by  Sir  George  Jessel, 
M.  R.  in  his  opinion  in  Re  Dean  Coal  Min.  Co.,  10  Ch.  Div.  450, 
where  he  says  :  "One  must  be  very  careful  in  administering  the  law 
of  joint  stock  companies  not  to  press  so  hard  on  honest  directors  as 
to  make  them  liable  for  these  constructive  defaults,  the  only  effect 
of  which  would  be  to  deter  all  men  of  any  property,  and  perhaps  all 
men  who  have  any  character  to  lose,  from  becoming  directors  of 
companies  at  all.  On  the  one  hand,  I  think  the  court  should  do  its 
utmost  to  bring  fraudulent  directors  to  account  ;  and,  on  the  other 
hand,  should  also  do  its  best  to  allow  honest  inen  to  act  reasonably 
as  directors.  Willful  default  no  doubt  includes  the  case  of  a  trustee 
neglecting  to  sue,  though  he  might  by  suing  earlier  have  recovered 
a  trust  fund.  In  that  case  he  is  made  liable  for  want  of  due  dili- 
gence in  his  trust.  But  I  think  directors  are  not  liable  on  the  same 
principle."  The  theory  of  this  bill  is  that  the  defendants  are  liable, 
not  to  stockholders  nor  to  creditors,  as  such,  but  to  the  bank,  for 
losses  alleged  to  have  occurred  during  their  period  of  office,  because 
of  their  inattention.  If  particular  stockholders  or  creditors  have  a 
cause  of  action  against  the  defendants  individually,  it  is  not  sought 
to  be  proceeded  on  here,  and  the  disposition  of  the  questions  arising 
thereon  would  depend  upon  different  considerations. 

In  Preston  v.  Prather,  137  U.  S.  604,  it  was  ruled  that  gratuitous 
bailees  of  another's  property  are  not  responsible  for  its  loss  unless 
guilty  of  gross  negligence  in  its  keeping  ;  and  whether  that  neg- 
ligence existed  or  not  is  a  question  of  fact  for  a  jury  to  determine, 
or  to  be  determined  by  the  court  where  a  jury  is  waived.  And,  fur- 
ther, that  the  reasonable  care  which  the  bailee  of  another's  property 
intrusted  to  him  for  safe  keeping  without  reward  must  take,  varies 
with  the  nature,  value,  and  situation  of  the  property,  and  the  bear- 
ing of  surrounding  circumstances  on  its  security.     That  was  a  case 


566  OFFICERS  [vol  I 

Note 

of  persons  eng-aged  in  the  business  of  banking-  receiving-  for  safe 
keeping-  a  parcel  containing-  bonds,  which  was  put  in  their  vaults. 
They  were  notified  that  their  assistant  cashier,  who  had  free  access 
to  the  vaults  where  the  bonds  were  deposited,  and  who  was  a  person 
of  scant  means,  was  engag-ed  in  speculations  in  stocks.  They  made 
no  examination  of  the  securities  deposited  with  them,  and  did  not 
remove  the  cashier.  He  stole  the  bonds  so  deposited  :  and  it  was 
held  that  the  bankers  were  guilty  of  gross  negligence,  and  were 
liable  to  the  owner  of  the  bonds  for  their  value  at  the  time  they 
were  stolen.  And  Mr.  Justice  Field,  delivering  the  opinion,  said  : 
"Undoubtedly,  if  the  bonds  were  received  for  safe  keeping,  without 
compensation  to  them  in  an}-  form,  but  exclusively  for  the  benefit 
of  the  plaintiffs,  the  only  obligation  resting  upon  them  was  to  ex- 
ercise over  the  bonds  such  reasonable  care  as  men  of  common  pru- 
dence would  usuall}'  bestow  for  the  protection  of  their  own  property 
of  a  similar  character.  No  one  taking  upon  himself  a  duty  for 
another  without  consideration  is  bound,  either  in  law  or  morals,  to 
do  more  than  a  man  of  that  character  would  do  generally  for  him- 
self under  like  conditions."  No  one  of  the  defendants  is  charged 
with  the  misappropriation  or  misapplication  of  or  interference  with 
any  property  of  the  bank  nor  with  carelessness  in  respect  to  any 
particular  property',  but  with  the  omission  of  duty  which,  if  per- 
formed, would  have  prevented  certain  specified  losses,  in  respect  of 
which  complainant  seeks  to  charge  them. 

The  doctrine  that  one  trustee  is  not  liable  for  the  acts  or  defaults 
of  his  co-trustees,  and  while,  if  he  remains  merely  passive,  and  does 
not  obstruct  the  collection  b3'  a  co-trustee  of  moneys,  is  not  liable 
for  waste,  is  conceded  ;  but  it  is  argued  that  if  he  himself  receives 
the  funds  and  either  delivers  them  over  to  his  associates,  or  does 
any  act  by  which  they  come  into  the  possession  of  the  latter  or  under 
his  control,  and  but  for  which  he  would  not  have  received  them, 
such  trustee  is  liable  for  any  loss  resulting  from  the  waste,  .(Bruen 
V.  Gillet,  115  N.  Y.  10 ;  2  Pom.  Eq.  Jur.  i?;<  1069,  1081,)  and  that  this 
case  comes  within  the  rule  as  thus  qualified.  Treated  as  a  cause  of 
action  in  favor  of  the  corporation,  a  liability  of  this  kind  should  not 
lightly  be  imposed  in  the  absence  of  any  element  of  positive  misfea- 
sance, and  solely  upon  the  ground  of  passive  negligence  ;  and  it 
must  be  made  to  appear  that  the  losses  for  which  defendants  are 
required  to  respond  were  the  natural  and  necessary  consequence  of 
omission  on  their  part.  And  in  this  connection  the  remarks  of  Mr. 
Justice  Bradley  in  New  York  Cent.  R.  Co.  r.  Eockwood,  17  Wall. 
(U.  S.),  357,  382,  may  well  be  quoted  :  "We  have  already  adverted  to 
the  tendency  of  judicial  opinion  adverse  to  the  distinction  between 
gross  and  ordinary  negligence.  Strictly  speaking,  these  expressions 
are  indicative  rather  of  the  degree  of  care  and  diligence  which  is 
due  from  a  party,  and  which  he  fails  to  perform,  than  of  the  amount 
of  inattention,  carelessness,  or  stupidity  which  he  exhibits.  If 
very  little  care  is  due  from  him,  and  he  fails  to  bestow  that  little,  it 
is  called  'gross'  negligence.  If  very  great  care  is  due,  and  he  fails 
to  come  up  to  the  mark  required,  it  is  called  'slight'  negligence. 
And  if  ordinary  care  is  due,  such  as  a  prudent  man  would  exercise 
in  his  own  afi^airs,  failure  to  bestow  that  amount  of  care  is  called 
'ordinary'  negligence.  In  each  case  the  negligence,  whatever  epi- 
thet we  give  it,  is  failure  to  bestow  the  care  and  skill  which  the 
situation  demands,  and   hence  it  is  more  strictly  accurate,   perhaps, 


B  CAS]  OFFICERS  567 

Note 

to  call  it  simply  'neg^lig-ence.'  And  this  seems  to  be  the  tendency  of 
modern  authorities.  If  they  mean  more  than  this,  and  seek  to 
abolish  the  distinction  of  deg"rees  of  care,  skill,  and  diligence  re- 
quired in  the  performance  of  various  duties  and  the  fulfillment  of 
various  contracts,  we  think  they  go  too  far,  since  the  requirement  of 
different  degrees  of  care  in  different  situations  is  too  firml3'  settled 
.and  fixed  in  the  law  to  be  ig-nored  or  changed."  In  an^^  view  the 
degree  of  care  to  which  these  defendants  were  bound  is  that  which 
ordinarily  prudent  men  would  exercise  under  similar  circumstances, 
and  in  determining  that  the  restrictions  of  the  statute  and  the 
usages  of  business  should  be  taken  into  account.  What  may  be 
negligence  in  one  case  maj'  not  be  want  of  ordinary  care  in  another, 
and  the  question  of  negligence  is  therefore  ultimately  a  question  of 
fact,  to  be  determined  under  all  the  circumstances.  The  alleged 
liability  of  the  defendants  is  such  that  the  facts  inust  be  examined 
as  to  each  of  them. 

In  Swentzel  ei  al.  v.  Penn  Bank  ei  al.  (Pa.),  37  Am.  &  Eng.  Corp. 
Cas.  642,  it  was  held  that  the  law  does  not  hold  the  directors  of  a 
bank  to  the  same  care  which  an  individual  ordinarily  takes  of  his 
own  business;  thej'  are  only  required  to  exercise  the  ordinary  care 
which  bank  directors  usually  exercise  and  are  only  liable  for  fraud 
or  for  such  gross  negligence  as  amounts  to  fraud.  In  determining 
what  is  such  ordinary  care  regard  must  be  had  to  the  usages  of  the 
business.  If  a  director  performs  his  duties  in  the  same  manner  as 
they  are  performed  by  the  directors  of  all  other  banks  in  the  same 
city  he  is  not  guilty  of  gross  negligence.  See  also  Williams  v.  Mc- 
Kay (N.  J.),  11  Am.  &  Eng.  Corp.  Cas.  613. 

In  Robinson  v.  Hall,  59  Fed.  Rep.  648,  it  was  held  that  directors, 
of  national  banks  will  not  be  held  personally  liable  unless  in  case 
of  active  or  passive  fraud  or  extreme  negligence.  The  court  said  : 
"Mere  neglect  to  fully  inform  themselves  of  the  affairs  of  the  bank, 
even  to  the  extent  that  they  could  be  ascertained  by  an  inspection 
of  its  books,  is  not  held  to  be  gross  negligence,  unless,  perhaps,  iu 
cases  where  grounds  of  suspicion  of  the  good  conduct  of  their  offi- 
cers exist,  and  have  come  to  their  knowledge,  or  may  rea.sonablj'  be 
supposed  to  have  been  known  to  them.  The}'  are  pecuniarily  inter- 
ested as  stockholders  in  the  faithful  conduct  of  their  officers,  and 
it  would  be  considered  unjust  for  any  slight  reason  to  hold  them 
further  liable  to  what  in  many  cases  would  be  the  total  ruin,  by 
liabilitv  for  the  losses  of  the  bank  in  case  of  its  failure." 


568  OFFICERS  [vol  I 

Lanison  et  al.  v.  Beard 


Lamson  et  al. 

V. 

Beard. 

C.  B.  CoNGDON  &  Co.  V.  Same.     Phelps  et  al.  v. 

Same. 

(Circuit  Court  of  Appeals,  Seventh  Circuit,  May  ig,  i8gg.) 

Review — Special  Findings — Evidence. —  It  is  immaterial  whether 
there  was  error  in  admitting-  evidence  of  irrelevant  or  immaterial 
facts  stated  in  special  finding's. 

Misuse  of  Bank's  Draft  by  President  Having  Apparent  Authority. — 
If  the  directors  of  a  bank  authorize  its  president  to  use  its  drafts 
for  his  individual  purposes,  whether  paid  for  at  the  time  or  not,  any 
loss  resulting-  from  a  misuse  of  such  authority  should  fall  upon  the 
bank,  rather  than  upon  a  third  person,  who  in  good  faith  has  paid 
value  for  a  draft  of  the  bank  wrongfully  used  by  its  president  ;  and 
the  question  of  good  faith  should  be  determined  by  the  ordinary 
rules  applicable  to  the  transfer  of  mercantile  paper. 

Same  — Drawee — Inquiry.* — A  creditor  receiving  a  draft  purporting 
to  be  the  draft  of  a  bank,  drawn  by  its  president,  and  sent  by  the 
latter  in  discharge  of  his  individual  liabilities,  must  at  his  peril 
inquire  of  the  bank's  directors  whether  the  president  had  authority' 
to  draw  the  draft  for  such  purpose. 

Special  Findings — Embezzlement — Bookkeeping. — In  an  action  to 
recover  the  proceeds  of  the  drafts  of  a  bank  wrongfully  used  bj'  its 
president  to  discharge  an  individual  liability,  a  special  finding  of 
such  wrongful  and  unauthorized  appropriation  cannot  be  overcome 
bj'  proof  of  entries  on  the  bank's  books  disclosed  by  the  special  find- 
ings which,  even  if  honestly  made,  would  amount  only  to  evidence 
tending  to  show  that  the  bank  was  paid  for  the  drafts. 

Embezzlement  by  President — Whether  Bank  Chargeable  with 
President's  Knowledge.  I — The  knowledge  of  the  president  of  the 
bank  of  his  own  frauds  in  using  the  bank's  funds  to  discharge  his 
individual  liabilities  was  not  attributable  to  the  bank. 

President  Wrongfully  Using  Bank's  Draft — Drawee — Inquiry. — A 
creditor  receiving  a  draft  purporting  to  be  the  draft  of  a  bank,  but 
wrongfully  drawn  by  its  president  in  discharg-e  of  his  individual 
liabilities  to  such  creditor,  is  not  a  purchaser  in  good  faith,  but  is 
put  upon  notice  of  the  president's  lack  of  authority  to  draw  upon 
the  funds  of  his  bank  for  his  individual  purposes  ;  and  the  bank's 
receiver  may  compel  such  creditor  to  refund  the  proceeds  of  the 

*See  note  at  end  of  case. 

fSee  notes,  1  Banking-  Cases  23  et  seq. 


B  CAS]  OFFICERS  569 

L/amson  et  al.  v.  Beard 

draft  where  they  have  been  wrongfullj'  appropriated  by  the  presi- 
dent, and  received  by  the  creditor. 

President  Using  Authority  in  His  Own  Behalf. — The  fact  that 
j^-eneral  authority  has  been  f^fiven  a  bank  president  to  use  the  bank's 
drafts  in  its  behalf  will  not  render  the  bank  responsible  for  its 
drafts  to  a  creditor  of  the  president  receiving-  thena,  where  they 
have  been  wrongfully  used  by  the  president  to  discharge  his  indi- 
vidual liabilities  to  such  creditor. 

Commercial  Paper — Bona  Fide  Holders  —  Public  Policy. —  The 
drafts  of  a  bank  wrongfully  used  by  its  president  to  discharge  his 
individual  debt,  when  received  by  his  creditor,  are  not  commercial 
paper,  capable  of  treatment  as  money,  and  the  considerations  of 
public  policy  on  which  the  bo>ia  fide  holder  of  such  paper  is  pro- 
tected, even  though  the  rights  of  an  antecedent  holder  be  question- 
able, have  no  application. 

President  Using  Bank's  Drafts  in  His  Own  Behalf —  Drawee- 
Inquiry. — Where  it  is  apparent  on  the  face  of  drafts,  used  by  the 
president  of  a  bank  in  discharge  of  his  individual  debts,  that  they 
are  drawn  on  the  funds  of  the  bank,  his  creditor  cannot  receive 
them  without  being  bound  at  his  peril  to  inquire  of  the  bank's 
directors  whether  the  president  had  authority  to  use  them  for  such 
purpose  ;  and  the  contention  that  if  he  "had  authority  to  draw 
drafts  to  his  own  or  his  creditor's  order,  upon  payments  by  him  to 
the  bank  for  the  same,"  the  fact  of  drawing  such  drafts  was  a  rep- 
resentation, on  which  the  creditor  receiving-  them  had  a  right  to 
rely,  that  such  payments  had  been  made,  is  without  merit. 

Issues. — The  question  of  gambling  was  not  an   issue  in  the  case. 

Error  by  defendants  to  the  Circuit  Court  of  the 
United  States  for  the  Northern  Division  of  the  North- 
ern District  of  Illinois.      Affinjicd. 

These  are  actions  of  assumpsit,  broug-ht  by  Robert 
R.  Beard,  as  receiver  of  the  First  National  Bank  of 
Pella,  Iowa,  to  recover  of  the  respective  plaintiffs  in 
error,  who  are  commission  merchants  at 
Chicaofo,  the  proceeds  of  drafts  of  the  bank, 
drawn  in  their  favor  and  delivered  to  them  by  K.  R. 
Cassatt,  then  president  of  the  bank,  in  dischargee  of 
individual  liabilities  incurred  in  transactions  conducted 
by  them  for  him  on  the  board  of  trade  at  Chicagfo. 

The  plaintiffs  in  error  in  the  first  case  are  co-part- 
ners under  the  name  of  Lamson  Bros.  &  Co.  ;  in  the 
third  case,  under  the  name  of  Milmine,  Bodman  cS: 
Co.  ;  and  in  the  second  caseC.  B,  Congfdon  &  Co.  is  the 
name  of  a  corporation.  The  declaration  in  each  case 
contains  the  customary  common  counts,  and  also  spe- 
cial counts,  to  which  the  drafts  therein  sued  upon  are 


570  OFFICERS  [vol  I 

Lamson  ef  al.  v.  Beard 

made  exhibits.  Plea  in  each  case,  non  assumpsit  ;  and 
in  the  first  case  a  trial  by  jury.  The  errors  assiofned 
in  that  case  have  reference  to  the  g-ivino-  and  refusing- 
of  instructions.  The  evidence  is  in  the  record,  and  is 
without  substantial  conflict.  The  drafts,  of  which 
there  were  ten,  were  all  drawn  upon  a  lithog-raphed  or 
printed  form,  and,  excepting"  dates  and  amounts,  are 
like  the  first,  which  reads  as  follows  : 
"First  National  Bank. 

"Pella,  June  27,  1892. 

"Pay  to  the  order  of  Lamson  Bros.  &  Co.  $400,  four 
hundred  dollars.  "E.  R.  Cassatt,  Pt. 

"To  National  Bank  of  Illinois.  Cashier." 

The  word  "Cashier"  is  in  print,  and  the  letters 
"Pt.,"  opposite  the  name  of  Cassatt,  were  written  bv 
him  to  indicate  his  office  as  president  of  the  bank. 
He  sent  the  drafts  by  mail  to  Lamson  Bros.  &  Co.,  in 
response  to  their  demands,  in  order  to  maintain  his 
marg"ins,  and  in  each  instance  they  acknowdedg-ed  re- 
ceipt by  a  letter  addressed  to  Cassatt  individually.  In 
their  letter  of  December  20,  1893,  they  say,  "Your 
account  has  credit  for  $200,  received  from  First  Na- 
tional Bank  of  your  city,"  and  in  that  of  January  22, 
1894,  they  say  :  "We  received  today  from  the  First 
National  Bank  of  your  citv  their  favor  of  the  20th  in- 
stant, containing"  draft  for  $400,  which  we  have  cred- 
ited to  your  account." 

Under  the  court's  charg-e,  which  upon  the  main 
question  in  the  case  followed  the  opinion  of  Judge 
Wallace  in  Anderson  v.  Kissam,  35  Fed.  699,  the 
jury  returned  a  verdict,  upon  which  judg^ment  was 
entered  in  favor  of  the  plaintiff  for  the  sum  of  $3,588. 
of  which  it  is  conceded  the  sum  of  $688  was  for  inter- 
est. In  support  of  the  court's  charg-e  there  have  been 
cited  (in  addition  to  Anderson  v.  Kissam,  supra) 
Chrystie  v.  Foster,  9  C.  C.  A.  606,  61  Fed.  551  : 
Moores  v.  Bank,  15  Fed.  141  ;  A/.,  Ill  U.  S.  156,  4 
Sup.  Ct.  345  ;  Claflin  v.  Bank,  25  N.  Y.  293  ;  Gerard 
r.  McCormick,  29  N.  K.  115,  130  N.  Y.  261  ;  Wilson 
V.    Railwav  Co.,  (N.  Y.  App.)  24  N.  F.  384;  Shaw  r. 


B  CAS]  OFFICERS  571 

Lamsoti  et  al.  v.  Beard 

Spencer,  100  Mass. '384;  Bank  v.  Wag-ner,  (Ky.)  20 
S.  W.  535.  Per  contra,  the  plaintiffs  in  error  have 
cited  Goshen  Nat.  Bank  v.  State,  141  N.  Y.  379,  36  N. 
E)  316  ;  Bank  of  New  York  Nat.  Baukingf  Ass'n  v. 
American  Dock  &  Trust  Co.,  143  N.  Y.  564,  38  N.  E. 
713  ;  Hanover  Nat.  Bank  v.  Same,  148  N.  Y.  612,  43 
N.  E:.  72 ;  Kissam  v.  Anderson,  145  U.  S.  435,  12  Sup. 
Ct.  960.  This  case  wasarg^ued  at  the  October  session, 
1898,  Judge  Showalter  with  the  other  circuit  judges 
composing-  the  court.  In  each  of  the  other  cases  a  trial 
by  jury  was  waived  by  written  stipulation,  and  the  court 
made  a  special  finding-  of  facts,  based  in  the  main  upon 
an  ag-reed  statement  of  the  parties,  and  g-ave  judg-ment 
for  the  plaintiff. 

The  iinding-s  in  No.  555  are  as  follows  : 

"First.  The  plaintiff  was  before  and  at  the  time  of 
the  commencement  of  this  suit,  and  is  now,  the  receiver, 
duly  appointed  b}'  the  comptroller  of  the  currency,  of 
the  First  National  Bank  of  Pella.  The  plaintiff  was 
at  the  time  of  the  commencement  of  this  suit,  and  is, 
a  citizen  of  the  state  of  Iowa. 

"Second.  The  defendant  C.  B.  Congfdon  &  Co.  is  a 
corporation  org-anized  under  the  laws  of  the  state  of 
Illinois,  having-  its  principal  place  of  business  in  Chi- 
cago, in  the  Northern  division  of  the  Northern  district 
of  said  state.  Said  corporation  is  a  resident  and  citi- 
zen of  the  state  of  Illinois,  and  of  the  Northern  division 
of  the  Northern  district  thereof,  and  was  so  org-anized 
and  incorporated,  and  was  such  resident  and  citizen, 
at  the  time  of  the  commencement  of  this  suit. 

"Third.  The  said  First  National  Bank  of  Pella  is 
situated  at  Pella,  a  town  of  about  3,000  inhabitants,  in 
the  midst  of  a  farming-  community,  and  was  or- 
g-anized in  1871,  under  the  banking-  laws  of  the  United 
States,  with  a  capital  stock  of  $50,000.  E.  R.  Cas- 
satt  was  the  principal  person  eng-ag-ed  in  its  org^aniza- 
tion,  and  after  the  year  1883,  tog-ether  with  his 
relatives,  owned  a  majority  of  the  stock,  all  of  which 
was  controlled  by  Cassatt.  From  the  time  of  the 
org-anization    of  the    bank  to    its  failure  Cassatt    was 


572  OFFICERS  [vol  I 

Lamson  et  al.  v.  Beard 

president,  and  the  principal  executive  officer  of  the 
bank,  and  enjoyed  in  a  high  degree  the  confidence  of 
its  stockholders  and  of  the  people  of  Pella  and  of  the 
surrounding-  country.  Subsequent  to  1881  the  man- 
agement of  the  bank  was  entirel}''  under  the  control 
of  B.  R.  Cassatt.  The  board  of  directors  performed 
their  duties  largely  in  a  perfunctory  manner,  and  their 
knowledge  as  to  the  affairs  of  the  bank  was  derived 
almost  exclusivel}"  from  the  statements  made  to  them 
by  Cassatt.  Cassatt  dictated  the  persons  to  whom 
loans  should  be  made,  and  had  the  entire  discretion  as 
to  the  acceptance  of  all  bills  receivable  which  became 
part  of  the  assets  of  the  bank.  The  method  by  \vhich 
the  affairs  of  the  bank  were  conducted,  the  duties  which 
the  clerks  performed,  the  manner  of  selling  exchange, 
and  the  other  executive  methods  of  the  bank  were 
devised  by  said  Cassatt,  and  carried  on  under  his 
directions,  without  interference  from  the  directors. 
The  board  of  directors  reposed  implicit  confidence  in 
Cassatt,  and  accepted  his  statements  as  true  in  regard 
to  all  the  affairs  of  the  bank,  and  made  no  examination 
of  the  bills  receivable  to  ascertain  whether  they  were 
spurious  or  not.  Cassatt  had  charge  of  the  bills 
receivable  of  the  bank  and  of  the  cash  chest.  Cassatt 
was  accustomed,  from  the  organization  of  the  bank  dowm 
to  the  time  of  its  failure,  to  draw  drafts  on  the  funds  of 
said  bank  on  deposit  in  other  banks,  signing  such  drafts 
in  the  name  of  himself  as  president.  The  affairs  of  the 
bank  were  examined  twice  a  year  by  the  examiner 
appointed  by  the  comptroller  of  the  currency  of  the 
United  States.  At  the  time  of  such  examinations  Cas- 
satt was  accustomed  to  exhibit  to  the  examiner  the  bills 
receivable  and  the  cash  on  hand,  and  then  return  them 
to  the  safe.  At  such  times  the  proper  amount  of  cash 
was  on  hand  and  such  bills  receivable  as  the  books  of 
the  bank  showed  to  be  on  hand.  The  balance  of  the 
stock  of  the  bank,  outside  of  Cassatt's  holdings,  were 
held  in  small  amounts,  the  average  being  about  $2,000 
of  stock  (at  its  par  value). 

"Fourth.   The    said   First  National    Bank  of   Pella 


B  CAS]  OFFICERS  573 

Lamson  ct  al.  v.  Beard 

went  into  the  hands  of  a  receiver  June  25,  1895.  At  the 
time  of  its  failure  it  was  for  the  first  time  ascertained 
by  its  stockholders,  and  by  the  other  officers,  that  said 
Cassatt  was  a  defaulter  to  the  bank  in  the  sum  of  about 
$65,000.  Such  sum  had  been  taken  by  Cassatt,  from 
time  to  time,  from  the  moneys  of  the  bank,  and  had  been 
concealed  by  means  of  forg-ed,  spurious,  and  other 
fictitious  notes  ;  other  evidences  of  loans  having-  been 
put  into  the  bank  by  Cassatt.  The  forg-ed  and  fictitious 
notes  were  so  adroitly  executed  that  there  was  nothing- 
that  would  sugfg-est  to  the  ordinary  observer  that  the 
notes  were  not  genuine,  as  they  purported  to  be.  The 
said  Cassatt  has  since  that  time  been  dul}^  indicted, 
tried,  and  convicted  for  the  embezzlement  of  said 
$65,000,  and  is  now  serving-  his  sentence  on  account  of 
such  conviction. 

"Fifth.  The  said  Cassatt  beg-an  to  have  business 
dealing's  with  C.  B.  Congdon  &  Co.,  a  firm  consisting- 
of  C.  B.  Cong-don  and  A.  C.  Davis,  commission  mer- 
chants on  the  Board  of  Trade  in  the  city  of  Chicago, 
in  1894,  continuing-  to  have  such  transactions  down 
to  and  including-  a  portion  of  September,  1894,  On 
or  about  September  24,  1894,  the  defendant  corpora- 
tion of  C.  B.  Cong-don  &  Co.  was  duly  organized 
under  the  laws  of  the  state  of  Illinois  and  authorized 
to  begin  business.  On  said  September  29,  1894,  said 
corporation  duly  purchased  the  good  will  and  property 
of  the  said  firm  of  C.  B.  Congdon  &  Co.  and  of  the 
firm  of  A.  C.  Davis  &  Co.,  said  A.  C.  Davis  being 
a  member  of  both  firms.  The  stockholders  of  said 
corporation  were,  and  at  the  time  of  said  transaction 
continued  to  be,  and  still  are,  the  same  men  who 
constituted  the  firm  of  C.  B.  Congdon  &  Co.  and 
the  firm  of  A.  C.  Davis  &  Co.  The  officers  of  said 
corporation,  at  the  time  of  its  organization  and  at  the 
time  the    drafts    were  made  in    the  suit    here,  were  C. 

B.  Congdon,  president  ;  A.  C.  Davis,  vice  president  ; 
William  S.  Warren,  secretary  ;  Charles  H.  Hulburd, 
treasurer, —  the    said  C.    B.  Congdon    being    the  same 

C.  B.  Congdon  who    belonged  to  the    previous  firm  of 


574  OFFICERS  [vol,  I 

Lamson  et  al.  v.  Beard 

C.  B.  Coii^don  &  Co.,  and  the  said  A.  C.  Davis  being- 
the  same  A.  C.  Davis  who  belong-ed  to  the  firm  of  C. 
B.  Cong-don  &  Co.  The  directors  of  said  corporation 
were  at  the  beg-inning-,  and  have  ever  since  continued 
to  be,  C.  B.  Congdon,  A.  C.  Davis,  C.  H.  Hulburd. 
William  S.  Warren,  and  K.  A.  Lancaster.  From  the 
time  said  corporation  of  C.  B.  Cong-don  &  Co.,  was 
organized  the  said  Cassatt  continued  his  dealing's, 
formerly  had  with  C.  B.  Cong-don  &  Co.,  with  the 
said  corporation.  The  said  dealing-s  with  the  said 
corporation  and  its  predecessor,  C.  B.  Cong-don  &  Co., 
were  substantially  as  follows  :  The  said  Cassatt 
would,  either  personally  or  by  wire,  direct  the  said 
corporation  or  firm  to  purchase  or  sell  certain  futures 
in  either  wheat,  oats,  or  provisions,  which  said  direction 
would  be  executed  by  the  corporation  on  the  Chicago 
Board  of  Trade  by  buying-  of  or  selling-  to  some  other 
broker  on  such  board  the  futures  stipulated.  Such 
purchases  or  sales  would  thereupon  be  carried  by  said 
corporation  or  firm  in  the  name  of  and  for  the  benefit 
of  said  Cassatt  until  another  order  was  received  by 
Cassatt  closing-  out  the  same,  either  by  purchase  or 
sale,  as  the  case  mig-ht  be.  Under  the  rules  of  the 
Board  of  Trade  the  corporation  or  firm  would  have 
been  obligfed  to  have  delivered,  in  case  of  sales,  or 
accepted,  in  case  of  purchases,  from  the  brokers  with 
whom  they  had  transactions,  the  cereals  or  provisions 
in  question  when  the  deals  matured,  and  the  said  Cas- 
satt would  have  been  oblig-ed  to  have  taken  or  delivered 
to  the  corporation  or  firm  the  cereals  or  provisions 
called  for  in  such  deals  at  the  time  they  would  have 
matured.  As  a  matter  of  fact,  however,  none  of  the 
sales  made  by  the  corporation  or  firm  on  account  of 
Cassatt  ever  resulted  in  the  delivery  of  any  g-rain  or 
provisions,  and  none  of  any  of  the  purchases  made  on 
his  account  ever  resulted  in  obtaining-,  or  the  accept- 
ance of,  any  grain  or  provisions.  The-  deals  were,  in 
nearl}^  every  instance,  closed  before  the  future  to 
which  thev  related  had  arrived,  and  without  the  passing 
or  intention  to  pass  of  any   actual    g-rain  or  provisions. 


B  CAS]  OFFICERS  575 

L,amson  et  al.  v.  Beard 

All  the  transactions  of  Cassatt  with  the  said  corpora- 
tion or  firm  were  intended  by  him  to  be  purely  specu- 
lative transactions  in  futures  on  the  Board  of  Trade, 
and  were  so  understood  by  the  said  corporation  or  firm, 
and  none  of  the  said  transactions  contemplated  the 
purchase  or  sale  of  g"rain  or  provisions  with  any  other 
purpose  than  the  subsequent  disposal  of  the  same 
without  the  actual  delivery  or  acceptance  of  the  g-rain 
or  provisions  involved.  The  purchases  and  sales  were 
numerous,  and  represented,  in  the  ag^greg-ate,  a  large 
amount  of  dealing.  The  defendants  and  the  firm  were 
protected  from  losses  by  marg-ins  put  up  from  time  to 
time  with  them  by  said  Cassatt  for  that  purpose.  The 
general  course  of  said  speculation  was  unfavorable  to 
Cassatt.  He  occasionally  had  some  profits,  but  more 
frequently  suffersd  losses.  The  whole  course  of  the 
transactions  would  have  disclosed  to  an  ordinary 
observer,  fully  informed  of  the  facts,  that  Cassatt  was 
g-radually  losing-,  and  that  some  funds  owned  or  con- 
trolled by  him  must  have  been  gradually  eaten  into  by 
the  losses  from  time  to  time  incurred  and  the  margins 
put  up.  The  defendants  themselves  must  have  known 
this  prior  to  and  at  the  time  they  received  the  drafts 
sued  upon,  unless  they  willingfly  suffered  themselves 
to  be  deceived. 

"Sixth.  The  said  Cassatt,  in  order  to  carry  on  his 
deal  with  the  said  firm  and  defendants,  kept  two 
accounts  in  the  said  First  National  Bank  of  Pella, 
one  in  his  own  name,  and  the  other  in  the  name  of  E. 
R.  Cassatt  &  Co.  During-  the  period  of  said  deals 
Cassatt  remitted  to  the  said  firm,  on  account  of  the 
margins  aforesaid,  from  time  to  time,  drafts  similar  to 
the  drafts  sued  on  in  these  cases,  including  the  drafts 
sued  upon  ;  that  is  to  say,  the  drafts  signed  by  the  First 
National  Bank  of  Pella,  by  F.  R.  Cassatt,  president, 
drawn  upon  the  National  Bank  of  Illinois,  and  payable 
to  the  firm.  These  drafts  drawn  upon  the  firm  of  C. 
B.  Congdon  &  Co.  bore  the  dates,  and  were  for  the 
amounts,  as  follows :  1894  :  January  10th,  $400  ; 
January  24th,    $200  ;  February   10th,  $500  ;    February 


576  OFFICERS  [vol  I 

Lamson  ct  al.  v.  Beard 

16th,  $600;  April  25th,  $500;  May  12th,  $500;  May 
15th,  $500  ;  May  17th,  $1,100  ;  July  18th,  $600  ;  July 
20th,  $400.  Also,  there  were  sent  to  the  defendant  the 
corporation  of  C.  B.  Cong-don  &l  Co.  drafts  as  follows: 
1894  :  October  3d.  $2,000.  1895  :  January  23d,  $2,000. 
Said  drafts,  having-  been  received  by  the  said  firm  of 
C.  B.  Cong-don    &  Co.  and   the  said   corporation    of  C. 

B.  Cong-don  &  Co.,  and  credited  to  the  said  Cassatt  on 
their  books,  respectively,  were  indorsed  on  the  back  by 
the  said  firm  of  C.  B.  Cong-don  &  Co.  and  the  said 
corporation  of  C.  B.  Cong-don  &  Co.,  respectively,  and 
deposited  to  the  credit  of  their  account  in  their  bank  of 
deposit  in  Chicag-o,  the  Corn  Exchang-e  Bank,  by  which 
bank  they  were  passed  to  the  National  Bank  of  Illinois, 
and  charg-ed  by  said  last-named  bank  to  the  First 
National  Bank  of  Pella.  Such  drafts  were,  at  a  date 
subsequent  to  their  issue,  duly  credited  to  said  National 
Bank  of  Illinois,  and  charg-ed  to  some  account  on  the 
books  of  said  Pella  Bank  having-  a  credit  balance 
appearing-  upon  said  books  of  sufficient  amount  to  pay 
<^r  offset  such  charges,  except,  however,  in  so  far  as  the 
facts  stipulated  in  this  parag-raph  may  be  modified  by 
the  following-  statement,  to  wit,  that  at  the  time  of  the 
failure  of  the  Pella  Bank  the  books  of  said  National 
Bank  of  Illinois  showed  that  drafts  'to  the  amount  of 
$3,000  had  been  drawn  by  said  Pella  Bank  upon  said 
National  Bank  of  Illinois  and  not  credited  to  it  upou 
the   books  of  said  Pella  Bank. 

"Seventh.  None  of  said  drafts  were  used  or  intended 
to  be  used  to  pay  off  any  debt  or  oblig-ation  of  said 
bank,  but  all  were  used  to  supply  the  margfins  in  the 
private  transactions  of  the  said  Cassatt  with  the  said 
firm  of  C.  B.  Cong-don  &  Co.  and   said  corporation  of 

C.  B.  Cong-don  &  Co.,  as  aforesaid.  Said  transactions 
were  all  kept  secret  from  the  bank  by  said  Cassatt. 

"  I^ig-hth.  There  is  no  evidence  from  either  side, 
other  than  the  foreg-oing-,  tending-  to  show  that  the  said 
Cassatt  was  or  was  not  a  man  of  means,  independentl}"- 
of  his  holdino-s  in  the  said  First  National  Bank  of 
Pella.     Both  the  firm  of  C.   B.   Cong-don    &    Co.    and 


B  CAS]  OFFICERS  57/ 

Lamsoii  et  al.  v.  Beard 

the  corporation  of  C.  B.  Congdon  &  Co.  knew  that 
Cassatt  was  president  of  the  bank,  and  had  access  to  its. 
funds,  but  made  no  inquiry  as  to  whether  said  Cassatt 
had  means,  independently  of  his  holding's  in  said  bank, 
and  made  no  inquiry  of  said  Cassatt,  the  other  officers 
of  the  bank,  or  any  one  else  likely  to  know,  whether 
said  Cassatt  was  using"  his  own  means  in  the  specula- 
tive transactions  aforesaid,  and  no  inquiry  looking-  in 
that  direction. 

"  Ninth.  The  court  finds  that  the  avails  of  the 
drafts  sued  upon  in  this  case,  throug"h  the  means, 
already  described,  were  taken  purposely  by  the  said 
Cassatt,  without  authority  of  law,  but  as  an  act  of 
theft  and  embezzlement  from  the  funds  of  said  bank^ 
and  that  the  defendants,  in  receiving-  the  avails  of  said 
drafts,  were  in  fact  receiving-  the  moneys  stolen  by 
said  Cassatt  from  said  bank.  The  court  further  finds 
that  reasonable  and  prudent  men,  having"  no  selfish 
interests  to  subserve,  would  have  been  led,  by  the 
facts  in  possession  of  the  firm  of  C.  B.  Congfdon  &l 
Co.  and  of  the  defendant,  to  suspect  that  said  Cassatt 
migfht  be  unlawfully  using"  the  funds  of  said  bank  to 
supply  the  marg-ins  transmitted  to  the  firm  of  C.  B. 
Congfdon  &  Co.  and  the  corporation  of  C.  B.  Congfdon 
&  Co.,  respectively. 

"Wherefore,  the  court  finds  the  issues  for  the 
plaintiflF  and  against  the  defendants,  and  assesses  the 
plaintiff's  damage  at  the  sum  of  $2,323.61,  of  which 
$2,000  is  principal  and  $323.61  interest 

P.  S.  Grosscup,  Judgfe." 

In  No.  561  the  finding"s,  with  a  changfe  of  the  names- 
of  the  defendants,  are  the  same,  with  the  following" 
exceptions  : 

The  fifth  commences  with  this  statement  :  "Fifth. 
The  said  Cassatt  beg"an  to  have  business  dealing's  with 
the  defendants,  commission  merchants  on  the  Board  of 
Trade,  in  the  city  of  Chicag"o,  in  1884,  continuing"  to 
have  such  transactions  down  to  and  including"  a  portion 
of  the  year  1894," — and  also  contains  the  following"  r 
"The  mone}'   which   was  sent  to  Milmine,  Bodman  & 

B  CAS — 37 


o78  OFFICERS  [vol  I 

Lamson  ct  al.  v.  Beard 

Co.  to  pay  the  losses  aforesaid  was  in  turn  paid  out  by 
Milraiue,  Bodman  &  Co.,  for  the  purpose  of  discharg-- 
ing-  the  contracts  made  in  behalf  of  Cassatt  by  them, 
upon  which  the  losses  occurred,  and  no  profit  resulted 
to  Milmine,  Bodman  «&  Co.  by  re'ason  of  any  of  the 
dealing's  with  Cassatt,  except  the  commissions  which 
they  earned  as  brokers  in  neg-otiating-  the  transactions 
for  him." 

The  sixth,  after  the  first  sentence,  proceeds  as  fol- 
lows :  "During-  the  period  of  said  deals,  Cassatt 
remitted  to  the  defendants,  on  account  of  margfins 
aforesaid,  from  time  to  time  prior  to  the  drafts  sued  on 
in  this  case,  27  drafts,  each  of  which  was  exactly  simi- 
lar to  the  drafts  sued  on  in  this  case  ;  that  is  to  say, 
each  was  signed,  'First  National  Bank  of  Pella,  by  %. 
R.  Cassatt,  President.'  All  of  these  drafts  were  col- 
lected b}'  the  defendants  in  the  same  way  as  the  drafts 
in  the  suit.  The  earliest  of  the  series  of  drafts,  prior 
to  the  drafts  in  suit,  was  August  21,  1884,  and  the 
•latest  was  April  6,  1891.  Of  these  drafts,  there  were 
5  in  1884,  8  in  1885,  6  in  1886,  2  in  1887,  1  in  1888,  1  in 
1890,  and  2  in  1891,  and  were  for  the  amounts  and  bore 
the  dates  as  follows  :  1884  :  August  21st,  $500  ; 
October  11th,  $300  ;  November  19th,  $300  ;  December 
1st,  $500;  December  9th,  $300.  1885:  January  5th,  $200; 
February  19th,  $250  ;  March  25th,  $500  ;  April  27th, 
:$500;  July  27th,  $425;  October  5th,  $300;  October  10th, 
SI, 500;  October  15th,  $1,000.  1886:  April  12th,  $1,000; 
April  17th,  $1,000  ;  September  11th,  $300  ;  September 
.25th,  $300  ;  October  11th,  $300.  1887  :  February 
19th,  $300  ;  July  8th,  $300.  1888  ;  December  3d, 
$1,000.  1889  :  March  18th,  $800  ;  April  13th,  $500. 
1890  :  February  13th,-  $500.  1891  :  January  6th. 
.^500  ;  April  6th,  $1,000.  Kacli  of  said  drafts  was 
■^charged  by  the  National  Bank  of  Illinois  to  the  First 
National  Bank  of  Pella,  and  monthly  statements  were 
tsent  by  the  National  Bank  of  Illinois  to  the  First  Na- 
tional Bank  of  Pella,  which  were  checked  up  by  the 
-clerks  in  the  latter  bank,  but  during  the  two  years 
immediately   preceding-  the    failure  the   checking-   was 


B  CAS]  OFFICERS  579 

L/amson  et  al.  v.  Beard 

done  by  Cassatt  himself.  Most  of  the  drafts  sent  by  E, 
R.  Cassatt,  as  aforesaid,  both  those  prior  to  the  ones  in 
suit,  as  well  as  the  drafts  sued  upon  in  this  case,  except 
as  hereinafter  noted,  were  charg-ed  upon  the  books  of 
the  First  National  Bank  of  Pella,  either  to  the  account 
of  E.  R.  Cassatt,  or  to  the  account  of  E.  R.  Cassatt  & 
Co.,  which  account,  at  the  time  of  such  charg-ing-,  had 
an  apparent  credit  balance  sufficient  to  pay  or  offset 
the  charo-e  so  made  ag-ainst  it.  Such  of  said  drafts  as 
were  not  charg-ed  to  K,  R,  Cassatt,  or  to  E.  R.  Cassatt 
&L  Co.,  were  charg-ed  to  some  other  account  upon  the 
books  of  said  bank,  which  account,  at  the  time  of  said 
charg-es,  had  an  apparent  credit  balance  sufficient  to 
pay  or  offset  the  charg-es  so  made  ag-ainst  it.  Said 
drafts  were  all  sig-ned  by  E.  R.  Cassatt  as  president. 
The  drafts  sued  on  in  this  case  were  all  drawn  upon 
the  National  Bank  of  Illinois,  payable  to  Mil  mine, 
Bodman  &  Co.,  and  sig-ned  'First  National  Bank  of 
Pella,  by  E.  R,  Cassatt,  President,'  and  were  of  dates 
and  amounts  as  follows  :  1891  :  August  20th,  $1,400  ; 
Aug-ust  31st,  S800  ;  September  19th,  $500,  1892  : 
June  13th,  $2,000;  Aug-ust  27th,  $1,000;  September 
5th,  SI. 000  ;  October  22d,  $1,000  ;  October  28th,  $1,000. 
1893:  January  30th,  $1,000;  February  14th,  $600; 
February  18th,  $1,500  ;  March  13th,  $600  ;  June  21st, 
$2,500  ;  November  23d,  $300  ;  December  21st,  $500. 
1894:  January  24th,  $300:  February  10th,  $500; 
February  12th,  $600." 

And  the  seventh  contains  the  following-  additional 
statement  :  "The  telegraphic  correspondence  between 
said  Cassatt  and  the  defendants  was  carried  on  in 
cipher.  On  one  occasion  the  defendants  failed  to 
observe  this  cipher,  and  on  a  protest  from  said  Cassatt 
promised  that  such  oversig-ht  should  not  occur  ag-ain. 
It  is  not  unusual,  however,  for  Board  of  Trade  com- 
mission men  to  communicate  with  their  customers  in 
cipher.  The  cipher  used  in  this  case  was  the  so-called 
•Robinson  Cipher. '  Nearly  every  dealer  in  the  country 
has  a  copy  of  this.  The  teleg-rams  were  neither  sigfned 
nor    addressed    in    cipher,    but    were    addressed    and 


580  OFFICERS  [vol  I 

Lamson  et  al.  v.  Beard 

sigfned  by  the  correct  names  of  the  respective  parties/" 
In  No.    555   the   following-   propositions  and   the  au- 
thorities cited  are  relied  upon  : 

(1)  "There  was  nothing-  in  the  form  of  the  draft 
sued  on  to  create  a  suspicion  that  Cassatt  was  using- 
the  funds  of  the  bank  in  the  payment  of  his  individual 
indebtedness.  Goshen  Nat.  Bank  v.  State,  141  N.  Y. 
179,  36  N.  E.  316  ;  Claflin  v.  Bank,  25  N.  Y.  297  ; 
Bank  of  New  York  Nat.  Banking-  Ass'n  t-.  American 
Dock&  Trust  Co.,  143  N.  Y.  564,  38  N.  E.  713;  Huie 
:-.  Allen  (Sup.)  34  N.  Y.  Supp.  577  ;  Dike  v.  Drexel 
(Sup.)  42  N.  Y.  Supp.  985  ;  Goodman  v.  Simonds,  20 
How,  364  ;  Bank  of  Edg-efield  v.  Farmers'  Co-op, 
Mfg-.  Co.,  2  C.  C.  A,  637,  52  Fed.  98-103  ;  Bank  v. 
Holm,  19  C.  C.  A.  94,  71  Fed.  489  ;  Kaiser  v.  Bank, 
24  C.  C.  A.  88,  78  Fed.  281  ;  Anderson  v.  Kissam,  35 
Fed.  699  ;  Kissam  v.  Anderson,  145  U.  S.  435,  12  Sup. 
Ct.  960." 

(2)  "The  directors  of  the  Pella  Bank  were  g-uilty  of 
culpable  neg-lig-ence,  which  far  outweig-hed  any  slig-ht 
neg-lig-ence  of  defendant." 

(3)  "The  course  of  dealing-  between  the  bank  and 
the  defendant,  and  its  predecessor  firm  of  the  same 
name,  created  a  presumption,  upon  which  defendant 
could  rely,  that  the  draft  sued  on  was  properly  obtained 
by  Cassatt,  and  that  the  defendant  was  entitled  to 
receive  its  avails  in  payment  of  a  debt  due  from  Cassatt. 
There  was  implied  authority  for  his  act.  Martin  v. 
Webb,  110  U.  S.  7,  3  Sup.  Ct.  428  ;  Hanover  Nat. 
Bank  :•.  American  Dock  &  Trust  Co.,  148  N.  Y,  612, 
43  N,  F.  72." 

(4)  "Cassatt  paid  for  the  draft  by  the  use  of  the 
credits  the  bank  had  g-iven  him.  He  defrauded  the 
bank  in  his  obtention  of  the  credits,  but  that  was 
another  transaction.  So  long-  as  the  credits  subsisted, 
they  could,  as  between  the  bank  and  the  defendant,  be 
used  as  they  were  used.  Wilson  v.  Railway  Co.  (N. 
Y.  App.)24N.  K.  384." 

(5)  "Assuming-,  arguendo,  that  the  form  of  the  draft 
was  such  as  oug-ht  to  have  created  suspicion  that  Cas- 


B  CAS]  OFFICERS  581 

Ivamson  ef  al .  v.  Beard 

satt  might  be  improperly  using-  the  funds  of  the  bank 
in  payment  of  his  individual  debt,  and  that  the  defendant 
was  charg-ed  with  the  duty  of  inquiry,  and  made  none, 
it  is  only  charg-eable  with  a  knowledgre  of  such  facts 
as  it  would  have  learned  by  the  exercise  of  ordinary 
dilig-ence.  Birdsall  v.  Russell,  29  N.  Y.  220  :  Woolen 
Mills  V.  Sibert,  81  Ala.  140,  1  South.  773  ;  Knapp  r. 
Bailey  (Me.)  9  Atl.  122.  " 
In  No.  561  the  following-  : 

(1)  "The  defendants  were  under  no  duty  to  inquire 
into  the  facts  of  transactions  anterior  to,  and  entirely 
separate  and  distinct  from,  the  transactions  to  which 
they  were  parties." 

(2)  "The  court  erred  in  entering-  judgfment  ag-ainst 
the  defendants,  when  the  finding-s  showed  that  Cassatt 
had  paid  the  bank  for  everyone  of  the  drafts.  Goshen 
Nat.  Bank  r.  State,  141  N.  Y.  379,  36  N.  E.  316 ; 
Wilson  :•.  Railroad  Co.,  120  N.  Y.  145,  24  N.  K.  384; 
Hanover  Nat.  Bank  v.  American  Dock  &  Trust  Co., 
148  N.  Y.  612.  43  N.  K.  72  ;  Cowing-  v.  Altman,  71 
N.  Y.  435  ;  Railway  Co.  v.  Sprag-ue,   103  U.  S.  756." 

(3)  "The  fact  that  the  bank  had  allowed  Cassatt, 
for  a  period  of  seven  years  prior  to  the  dates  of  the 
drafts  in  suit,  to  draw  drafts  in  a  manner  exactly  like 
the  manner  in  which  he  drew  the  drafts  sued  on. 
established  a  course  of  dealing-  which  estops  the  bank 
to  deny  that  Cassatt  had  a  rig-ht  to  act  according-  to 
this  established  course.  Bronson's  I^x'r  v.  Chappell, 
12  Wall.  681  ;  Martin  v.  W^ebb,  110  U.  S.  7,  3  Sup.  Ct. 
428;  Merchants'  Bank  v.  State  Bank,  10  Wall.  604; 
Hooe  V.  Oxley,  1  Wash.  (Va.)  19  ;  McDonnell:'.  Bank. 
20  Ala.  313;  Martin  :•.  Manufacturing-  Co.,  9  N.  H. 
51  ;  Weaver  r.  Og-letree,  39  Ga.  586  ;  Railroad  Co.  v. 
Schuyler,  34  N.  Y.  30  ;  Hanover  Nat.  Bank  x-.  Amer- 
ican Dock  &  Trust  Co.,   148  N.  Y.  612,  43  N.  E.  72." 

(4)  "One  who  receives  a  bank  draft,  fair  on  its  face, 
sig-ned  by  the  officer  duly  authorized  to  sig-n  drafts, 
may  take  it  as  currency,  even  thoug-h  he  receives  it 
from  the  officer  who  sio-ns  it,  and  in  payment  of  the 
latter's  debt.     Goshen  Nat.   Bank  r.  State,  141  N.   Y. 


582  OFFICERS  [vol  I 

Lamson  et  al.  v.  Beard 

379,  36  N.  E.  316  ;  Goodman  t'.  Simonds,  20  How.  343  ; 
Railroad  Co.  r.  Schuyler,  34  N.  Y.  30  ;  Bank  of  E)dg-e- 
field  V.  Farmers'  Co-operative  Mfgf.  Co.,  2  C.  C.  A. 
637,  52  Fed.  98  ;  Swift  v.  Smith,  102  U.  S.  442." 

(5)  "Kven  if  Milmiiie  «&  Co.  had  inquired,  they 
could  not  possibly  have  found  out  the  secret  reasons 
existino-  between  Cassatt  and  the  bank  why  it  was 
improper  for  Cassatt  to  draw  these  drafts." 

Per  contra,  for  the  defendant  in  error,  the  follow- 
ing : 

(1-3)  Questions  of  practice. 

(4)  "The  receipt  by  the  plaintiff  in  error  of  the  drafts 
of  the  Pella  National  Bank  sig-ned  by  Cassatt  in  his 
official  capacity,  to  be  used  as  marg-ins  for  his  personal 
trades,  put  the  plaintiffs  in  error  upon  notice  that 
Cassatt  was  using"  the  bank's  funds  without  authority', 
and  plaintiffs  in  error  took  such  drafts  at  their  peril, 
and  are  accountable  to  the  receiver  for  the  avails 
thereof,  (a)  The  distinction  asserted  in  counsel's  brief 
as  to  this  point  does  not  exist.  Hanover  Nat.  Bank  :\ 
American  Dock  &  Trust  Co.,  148  N.  Y.  612.  43  N.  E. 
72  ;  Moores  v.  Bank,  15  Fed.  141  ;  Id.,  Ill  U.  S.  156. 
4  Sup.  Ct.  345  ;  Trust  Co.  v.  Bovnton,  19  C.  C.  A. 
118,  71  Fed.  797;  Gerard  v.  McCormick,  29  N.  E. 
115,  130  N.  Y.  261  ;  Anderson  v.  Kissam,  35  Fed.  699. 
703.  (b)  The  form  of  these  drafts  put  plaintiffs  in 
error  upon  notice.  Anderson  v.  Kissam  35  Fed.  699, 
703  ;  Chrystie  r.  Foster,  9  C.  C.  A.  606,  61  Fed.  551 ; 
Moores  v.  Bank,  15  Fed.  141  ;  Id.,  Ill  U.  S.  156,  4 
Sup.  Ct.  345  ;  Claflin  v.  Bank,  25  N.  Y.  293  Gerard  r. 
McCormick,  29  N.  E.  115.  130  N.  Y.  261  ;  Wilson  :■. 
Railway  Co.,  24  N.  E.  384,  120  N.  Y.  145  ;  Shaw  r. 
Spencer,  100  Mass.  382,  38+;  Bank  r.  Wag-ner  (Kv.) 
20  S.  W.  535  ;  Trust  Co.  r.  Boynton,  19  C.  C.  A.  118. 
71  Fed.  797.  (c)  The  defect  appearing-  upon  the  face 
of  the  drafts,  the  doctrine  of  Bank  of  Edg-efield  v. 
Farmers'  Co-op.  Mfg^.  Co.  and  Goodman  v.  Simonds. 
cited  by  plaintiffs  in  error,  does  not  apply,  (d)  The 
circumstances  of  the  case  of  Goshen  Nat.  Bank  v.  State 
were  radically  different  from  that  at  bar.     (e)  The  fact 


B  CAS]  OFFICERS  583 

Lamson  ct  al.  v.  Beard 

that  by  commoti  usag-e  bank  drafts  are  treated  as  cash^ 
if  that  be  a  fact,  cannot  be  availed  of  by  one  wha 
receives  the  bank's  draft,  sig-ned  by  the  president,  in 
payment  of  the  president's  debt,  to  relieve  the  recipient 
from  the  operation  of  the  rule  that  he  who  knowing-ly 
receives  from  an  ag^ent,  and  on  the  ag^ent's  account, 
that  which  belong"s  to  the  principal,  does  so  at  his  peril. 
Anderson  v.  Kissam,  35  Fed.  699,  703;  Shaw  z\ 
Spencer,  100  Mass.  384;  Moores  t;.  Bank,  15  Fed.  141: 
Id.,  Ill  U.  S.  156,  4  Sup.  Ct.  345." 

(5)  "Having"  failed  to  make  inquiry,  the  plaintiffs  in 
error  are  bound  by  the  actual  facts  as  they  existed, 
and  will  not  be  heard  to  contend  that  inquiry  would 
have  been  unavailing-.  Shaw  v.  Spencer,  100  Mass. 
384;  Trust  Co.  v.  Boynton,  19  C.  C.  A.  118,  71  Fed. 
797  ;  Manufacturing-  Co.  v.  Whitehurst,  19  C.  C.  A. 
130,  72  Fed.  502." 

(6)  "The  course  of  dealing-  between  the  bank  and 
plaintiffs  in  error  did  not  create  a  presumption,  upon 
which  the  plaintiffs  in  error  could  rely,  that  the  draft 
sued  upon  was  properly  obtained  by  Cassatt,  and  that 
the  plaintiffs  in  error  were  entitled  to  receive  its  avails 
in  payment  of  a  debt  due  from  Cassatt.  There  wa& 
no  implied  authority'  for  his  act.  Chrystie  ~c.  Foster. 
9  C.  C.  A.  606,  61  'Fed.  551  ;  Anderson  v.  Kissam. 
supra  ;  Wrig-ht's  Appeal,  99  Pa.  St.  425  ;  Hill  :•.  Pub- 
lishing- Co.  (Mass.)  28  N.  F.  142  ;  Powell  v.  Rogers, 
105  111.  318  ;  Berwind  v.  Schultz,  25  Fed.  912  ;  Clews 
V.  Bardon,  36  Fed.  617  ;  Brig-g-s  v.  Spaulding-,  141  U. 
S.  131,  11  Sup.  Ct.  924;  Percy  :•.  Millaudon^  8  Mart. 
(N.  S.)68,  74,  75." 

(7)  "The  court  found,  in  effect,  that  the  transactions 
on  account  of  which  these  drafts  were  forwarded  were 
g-ambling-  deals.  Therefore  the  avails  of  the  drafts 
could  be  recovered  by  the  receiver,  whether  the  brok- 
ers were  or  were  not  put  on  notice,  (a)  The  finding-  is 
that  neither  party  intended  actual  sales  or  purchases, 
but  purely  speculative  transactions  in  'futures.'  The 
intent  g-overns.  Irwin  v.  Williar,  110  U.  S.  499,  + 
Sup.  Ct.  160;  Boyd    r.    Hanson,    41  Fed.  174;  Insur- 


584  OFFICERS  [vol  I 

Lamson  et  al.  v.  Beard 

ance  Co.  v.  Watson,  30  Fed.  653  ;  Kirkpatrick  r. 
Adams,  20  Fed.  287  ;  Embrev  :•.  Jeraison,  131  U.  S. 
336,  9  Sup.  Ct.  776  ;  2  Benj.  Sales  (6th  Am.  Ed.)  828. 
(b)  The  broker  is  particeps  criminis.  Irwin  v.  Wil- 
liar,  110  U.  S.  499,  510,  4  Sup.  Ct.  160.  (c)  The 
intent  is  a  question  for  the  jury  (in  this  case  for  the 
court  to  find,  as  a  question  of  fact).  Kirkpatrick  v. 
Adams,  20  Fed.  287.  (d)  A  principal  may  recover 
moneys  gfambled  awav  by  his  ag-ent.  McAllister  v. 
Oberue,  42  111.  App.  287  ;  Smith  v.  Ray,  89  Ga.  838, 
16  S.  E.  90  ;  Mason  :■.  Waite,  17  Mass.  560  ;  Corner 
r.  Pendleton,  8  Md.  337  ;  Caussidiere  v.  Beers,  41  N. 
Y.  198,  1  Abb.  Dec.  333  ;  Burnham  r.  Fisher,  25  Vt. 
514  ;  Pierson  v.  Fuhrmann  (Colo.  App.)  27  Pac.  1015." 

Charles  H.  Dupec,  for  plaintiff  in  error  C.  B.  Cong-- 
don  &  Co. 

Lockxvood  Hoiiorc  3,ndJoh)i  P.  Wilsou,  for  plaintiffs 
in  error  E.  H.  Phelps  and  L.  W.  Bodman. 

Frank  H.  Scott  diW^  Jo/ni  H.  Hamliuc,  for  defendant 
in  error. 

Before  Woods  and  Jenkins,  Circuit  Judges,  and 
BuNN,  District  Judg-e. 

Woods,  Circuit  Judge,  after  stating  the  facts,  de- 
livered the  opinion  of  the  court. 

It  is  not  important  to  inquire  whether  the  court  erred 
in  admitting  evidence  of  immaterial  facts  stated  in  the 
special  findings.  The  one  question  upon  a  special 
finding  or  verdict  is  "of  the  sufficiency  of 
R^vifw-sp.rui  the  facts  found  to  support  the  iudgraent." 
(iPiire.  in    determmmg    that    question,    or    course, 

every  relevant  and  material  fact  found  must 
be  considered,  and  every  irrelevant  or  immaterial  fact 
rejected  ;  and  when  the  fact  has  been  excluded  from 
consideration  there  can  remain  no  harm  from  the  error 
of  admitting  the  evidence  by  which  it  v^as  established. 
The  special  findings  recite  many  facts  and  circum- 
stances which,  though  not  irrelevant,  are  of  an  eviden- 
tiary character  only.     The  ultimate  facts  on  which  the 


B  CAS]  OFFICERS  585 

Lanison  ct  al.  v.  Beard 

rio-hts  of  the  respective  parties  must  be  determined  are 
few.  They  are  comprehended  in  the  statement  that 
Cassatt,  being-  president  and  practically  in  sole  control 
of  the  bank,  without  authority,  and  without  the  knowl- 
edg-e  of  anv  other  officer  or  stockholder,  discharged  his 
individual  liabilities  to  the  plaintiffs  in  error,  respec- 
tively, by  sending  them  drafts  of  the  bank,  payable  to 
their  order,  and  drawn  upon  the  bank's  correspondent 
in  Chicagfo,  with  which  it  had  sufficient  moneys  out  of 
which  the  drafts,  after  indorsement  by  the  payees, 
were  duly  paid.  Much  discussion  has  been  expended 
upon  the  effect  of  the  form  of  the  drafts,  in  connection 
with  the  use  to  which  they  were  put,  as  notice  to  the 
payees  that  they  were  drawn  without  authority  ;  but, 
before  entering-  upon  that  inquirv,  it  will  be  well  to 
dispose  of  minor  contentions. 

Assuming-  that  the  plaintiffs  in  error,  when  the 
drafts  were  tendered  them,  were  put  upon  inquiry,  it 
is  asked,  what  would  have  been  the  subject  of  inquiry? 
and  what  facts  would  have  been  developed  ?  It  is  not 
accurate  to  say  that  the  inquir}^  would  have  been, 
"Did  Cassatt  pay  the  bank  for  the  drafts  ?"  Payment 
for  the  drafts,  doubtless,  would  have  been  important 
evidence,  but  not  necessarily  conclusive  upon  the  true 
point  of  inquiry,  which  was,  "Did  Cassatt  have 
authority  to  draw  the  drafts?"  He  might  have  had 
money  in  the  bank,  or  have  put  it. there  at  the  time  of 
drawing-  the  drafts,  and  yet  have  been  without  author- 
ity to  draw  them  ;  and  without  money  on  deposit,  and 
without  present  payment,  his  authority  to  draw  in  the 
form  and  for  the  purpose  proven  might  have  been 
beyond  dispute.  If,  trusting-  to  his  integ-rity  and  indi- 
vidual responsibility,  the  directors  authorized  him  to 
use  the  drafts  of  the  bank  for  his  individual 
purposes,  whether  paid  for  at  the  time  or  orln'i.yV"r^^s\^^^^^^^ 
not,  any  loss  resulting-  from  a  misuse  of  "„t,'"i:i,\.'''""'''"' 
that  authority  oug-ht,  of  course,  to  fall  upon 
the  bank,  rather  than  upon  a  third  person,  who  in 
g-ood  faith  had  paid  value  for  the  paper  ;  and  the  ques- 
tion of  good  faith  would  be  determined  by  the  ordinary 


586  OFFICERS  [vol  I 

Ivamson  et  al .  v.  Beard 

rules  applicable  to  the  transfer  of  mercantile  paper. 
The  fallacy  or  inapplicability  of  the  supposed  case  of 
John  Doe,  livin(»-  at  Pella,  and  procuring-  of  the  bank  a 
draft  payable  to  the  order  of  a  distant  creditor,  and 
forwarding-  the  draft  to  the  creditor  in  discharge  of 
the  debt,  is  evident.  It  is,  doubtless,  a  not  unusual 
practice  for  debtors  to  obtain  and  send  to  their  creditors 
bank  drafts,  drawn  payable  to  the  creditors,  and,  of 
course,  in  ever}^  such  case  the  creditor  knows  that  the 
money  of  the  bank  is  being  used  to  pay  to  him  the  debt 
of  another, — in  the  case  supposed,  the  debt  of  John 
Doe.  But  in  such  cases  the  creditor  may  accept  the 
draft  without  inquiry,  not,  as  counsel  have  said,  be- 
cause of  a  presumption  that  the  debtor  had  paid  for 
the  draft,  but  because  the  draft  had  been  drawn  by  the 
authorized  officer  of  the  bank  in  the  usual  course  of 
business,  acting  without  apparent  or  known  personal 
interest  in  the  transaction.  The  receiver  of  such  a 
draft,  thoug-h  named  as  payee,  and  on  the  face  of  the 
paper  apparently  a  party  to  the  original  execution 
thereof,  is  not  so  in  fact,  but,  as  against  the  drawer,  is 
in  effect  an  indorsee,  affected  only  by  vices  or  infirm- 
ities of  which  he  had  notice  before  he  accepted  it.  He 
might  know  that  the  draft  had  not  been  paid  for,  and 
vet  take  it  on  the  assumption  of  regular  and 

Siinif -Drawee—       -^  .  ji  -j 

iiiqairv.  proper  execution  upon  some  other  considera- 

tion than  payment.  The  inquiry,  therefore, 
which  these  plaintiffs  in  error  should  have  made,  was 
whether  Cassatt  had  authority  to  draw  drafts  of  the 
bank  upon  funds  of  the  bank  in  possession  of  its  cor- 
respondents for  use  in  his  individual  transactions. 
Such  an  inquiry  involved  no  difficulty  beyond  communi- 
cating to  the  directors  of  the  bank,  other  than  Cassatt. 
the  fact  that  such  a  draft  or  drafts  had  been  tendered  in 
discharge  of  liabilities  incurred  in  dealings  upon  the 
Board  of  Trade  in  Chicago,  and  asking  whether  the 
execution  of  the  paper  had  been  authorized.  There  can 
be  little  doubt  what  would  have  been  the  result  of  such 
an  inquiry,  accompanied  with  a  frank  and  full  statement 
of  the  facts  as  they  were  Known  to  the  payees  of  any  of 


B  CAS]  OFFICERS  587 

Lamson  et  al.  v.  Beard 

the  drafts  in  suit  at  the  time  of  execution.  It  would  not 
have  needed  a  discovery  of  Cassatt's  fraudulent  book- 
keeping- to  enable  the  directors  to  say  whether  the  ex- 
ecution of  such  paper  had  been  theretofore  authorized, 
or  then  had  their  approval.  As  contended,  it  was 
clearly  no  duty  of  the  plaintiffs  in  error  to  undertake 
an  examination  of  the  books,  which,  once  they  com- 
menced inquiry  into  the  managfement  of  the  bank, 
they  would  have  learned  had  been  wholly  in  the  keep- 
ing-  of  Cassatt,  and  of  clerks  who  could  not  be  expected 
to  testify  ag^ainst  him.  Inquiry  of  Cassatt,  too,  it  is  to 
be  presumed,  w^ould  have  been  useless,  and  therefore, 
if  made,  would  not  have  met  the  requirement  of  the  law. 
The  one  thingf  necessary  to  be  known  was  whether 
Cassatt  had  authority  to  make  the  purposed  use  of  the 
bank's  paper.  The  authority  could  have  come  only 
from  the  directors,  by  direct  resolution  or  by  acquies- 
cence or  implied  assent,  and  the  plain,  unmistakable 
course  was  to  push  the  inquiry,  wherever  begun,  to 
the  source  of  authority. 

It  is  a  perversion  of  speech  to  say  that  "the  findings 
showed   that    Cassatt   had  paid  the  bank  for  every  one 
of  the  drafts,"    or  that    if  the  defendants  had  g-one  to 
Pella,  and    had  ascertained    the  facts,  they 
would  have  found  that  Cassatt  was  a  depos-  snwaiFindiii?s 
itor  in  the  bank,   that    he  had  charged  each   itookkecpinif. 
draft  to  his  account,  that  he  had  on  deposit 
ample  funds  to  meet  the  charge,  that  he  gave  due  credit 
on  the  books  of  the  hank  to  its  Chicago  correspondent 
for  the  amount  of    each   draft,  and  that  no   step  in  the 
transaction  was  hidden  from  the  bank,  but  was  known 
to  it  and  recorded  in  its  books,  and  that  a  statement  of 
the  transactions  to  the  bank  could  have  caused  no  sur- 
prise,   because  the    bank  knew    of  each  as  it  occurred 
during  the  whole  period  of  twelve  years.     The  entries 
on  the  books,  it  may  be  said,  tended  to  show  the  facts, 
as  stated;  but  the  entire  finding- shows  that  Cassatt  was 
not  a  depositor,    and  in  no  way  made  good  to  the  bank 
the  moneys  taken  from  it  by  means  of  the  drafts,  which 
takings,    it    is   expressly   found,    were  acts  of  theft  or 


588  OFFICERS  [vol  I 

Lamson  et  al.  v.  Beard 

embezzlement.  That  findingf  of  the  ultimate  fact  of 
wrono-ful  and  unauthorized  appropriation  cannot  be 
overcome  by  proof  of  book  entries,  which,  even  if  hon- 
estly made,  would  amount  only  to  evidence  tending"  to 
show  the  contrary.  False  entries  took  no  money  out 
of,  and  put  none  into,  the  bank  ;  and  it  was  not  for  the 
fraudulent  bookkeeping-,  or  forg^eries,  or  any  other 
wrong-  or  series  of  wrong's  which  preceded  the  execu- 
tion of  the  drafts,  that  the  plaintiffs  in  error  were  held 
responsible.  On  the  contrar3^  we  ag-ree  that,  if  they 
are  to  be  compelled  to  make  restitution,  it  is  because 
the  particular  sums  which  they  received  were  wrong- 
full}^  taken  by  Cassatt  from  the  bank,  and  they  were 
parties  to  the  wrong*.  This  proposition  does  not  de- 
pend upon,  and  cannot  be  refuted  by,  the  bookkeeping- 
disclosed  in  the  special  finding".  It  embraces  the  three 
propositions  contended  for  by  counsel,  namely: 

"(1)  The  person  from  whom  restitution  is  soug"ht  must 
have  been  a  party  to  the  particular  transaction  in  which 
the  wrong-  was  accomplished.  (2)  The  particular 
transaction  to  which  such  person  was  a  party  must 
have  been  hidden  from  the  wrong"ed  party.  (3)  A  mere 
statement  to  the  wrong"ed  party  of  the  facts  of  such 
Xjarticular  transaction  would  have  at  once  disclosed  the 
fraud." 

While  the  transactions  appeared  upon  the  books,  as 
stated  in  the  finding's,  it  is  a  misuse  of  words,  and 
inconsistent  with  honest  thougfht,  to  say 
Sr„V-nTXrtt''"  that  they  were  known  to  the  bank.  Pos- 
Pmi"nrsiUffVed  ^essiou  of  facts,  in  books  purposely  kept 
in  a  manner  to  conceal  the  truth,  is  not, 
in  law  or  morals,  knowledgfe  of  the  facts.  Cassatt 
alone  had  knowledg-e  of  the  truth,  and,  thoug-h  he  was 
president,  his  knowledg"e  of  his  own  frauds,  perpe- 
trated for  his  individual  purposes,  was  not  attributable 
to  the  bank. 

The  foregfoing"  considerations  dispose  of  the  proposi- 
tion that  the  bank,  by  allowing"  Cassatt  to  make  a  like 
prior  use  of  drafts  drawn  by  himself,  had  established  a 
■course  of  dealing"  which   estops   the   bank  to  deny   his 


B  CAS]  OFFICERS  58*> 

Ivamsoii  et  al.  v.  Beard 

authority.  Of  course,  an  estoppel  may  arise  out  of 
such  a  course  of  dealing-,  but  whether,  in  a  particular 
case,  it  has  arisen  is  a  question  of  fact  depending  upon 
the  circumstances.  It  is  hardly  credible  that  in  the 
facts  here  disclosed  a  jury,  or  a  right-minded  court, 
could  find  an  estoppel  ;  but  it  is  enough  to  say  that  it 
has  not  been  found,  and  that  the  facts  supposed  to  point 
that  way  which  are  stated  in  the  finding-  do  not  over- 
come the  ultimate  fact  stated  that  the  sums  for  which 
these  drafts  were  drawn  were  wrongfully  taken  by 
Cassatt.  That  is  equivalent  to  a  direct  finding-  that  he 
had  no  authority  to  draw  and  use  the  drafts  in  that 
way.  Por  the  same  reasons  the  proposition  that  the 
directors  of  the  bank  were  g-uilty  of  culpable  negli- 
g-ence  is  unavailing-.  There  is  no  finding-  that  there 
was  such  neg-ligence,  nor,  if  there  were,  that  the  plain- 
tiffs in  error  were  influenced  by  it  to  accept  the  drafts, 
of  which,  on  the  facts  known  to  them,  Cassatt  was 
making-  an  improper  use. 

These  considerations  of  bookkeeping,  course  of 
dealing-,  neg-ligence  of  directors,  and  estoppel  aside, 
the  main  question  is  simplified  :  When  Cassatt  ten- 
dered these  drafts, — each  one  of  them  to  the  payee 
named  in  it  in  payment  of  an  individual  ob- 
ligation, in  which  the  bank  was  not  inter-  Et[^St,p"'Ba'„t-, 
ested, — was  the  taker,  accepting-  the  paper  "^^^^^^^  itrawer 
in  discharg-e  of  the  debt,  a  purchaser  in 
good  faith,  or  was  he  put  upon  notice  of  Cassatt's  lack 
of  authority  to  draw  upon  the  funds  of  his  bank  for 
his  individual  purposes?  Upon  that  question  our  con- 
clusion is  that  the  opinion  in  Anderson  v.  Kissam,  2>T) 
Fed.  699,  is  sound. in  principle  and  in  accord  with  the 
weig-ht  of  authority.  The  judg-ment  rendered  in  that 
case,  it  is  true,  was  reversed,  but  upon  a  minor  point, 
unconnected  with  the  main  question,  which  there,  as 
here,  was  fundamental  ;  and  the  fair  inference  would 
seem  to  be  that  if  the  supreme  court,  with  the  question 
before  it,  had  doubted  the  ruling-  and  opinion  below  in 
that  respect,  it  would  not  have  left  the  question  unde- 
termined. 


590  OFFICERS  [vol  I 

Lainson  et  at.  v.  Beard 

The  case  of  Goshen  Nat.  Bank  v.  State,  upon  which 
the  plaintiffs  in  error  chiefly  rel}',  is  disting-uishable. 
The  drafts  in  that  case  were  drawn  by  the  cashier,  and 
were  used  to  pay  his  individual  debt;  but, 
AuthoritMn'ufs  ^^  '^^^  opiniouis  careful  to  state,  it  was 
owiiBchair.  "proved  on  the  trial  that  the  cashier  had  the 

custody  and  possession  of  the  blank  drafts 
for  the  claimant  [the  bank],  and  that  he  had  the  right 
to  sign  drafts  drawn  by  the  claimant  on  its  correspond- 
ing- banks,  and  that  he  had  the  right  to  draw  a  draft 
on  the  corresponding  bank  of  the  claimant  for  himself, 
upon  the  same  terms  that  he  had  to  draw  a  draft  for  a 
stranger,  ^'  *  *  which  means,"  as  the  court  as- 
sumed, "upon  payment  to  the  bank  of  the  amount  of 
the  draft."  That  this  proof  of  special  authority  to 
draw  a  draft  for  his  own  use  was  the  distinguishing 
point  of  the  decision  is  declared  in  the  later  case  of 
Bank  of  New  York  Nat.  Banking  Ass'n  v.  American 
Dock  &  Trust  Co.,  supra,  where  it  was  held  that  a 
by-law  of  a  warehouse  company,  authorizing  an  officer 
of  the  company  to  sign  warehouse  receipts,  did  not 
authorize  him  to  sign  a  receipt  for  his  own  goods.  "It 
is  an  acknowledged  principle  of  the  law  of  agency,"  it 
was  there  said,  "that  a  general  power  or  authority 
given  to  the  agent  to  do  an  act  in  behalf  of  the  principal 
does  not  extend  to  a  case  where  it  appears  that  the 
agent  himself  is  the  person  interested  on  the  other  side. 
If  such  a  power  is  intended  to  be  given,  it  must  be  ex- 
pressed in  language  so  plain  that  no  other  interpreta- 
tion can  rationally  be  given  it ;  for  it  is  against  the 
general  law  of  reason  that  an  agent  should  be  intrusted 
with  power  to  act  for  his  principal  ^nd  for  himself  at 
the  same  time."  See,  also,  Hanover  Nat.  Bank  v. 
American  Dock  &  Trust  Co.,  148  N.  Y.  612,  43  N.  E. 
72. 

It  is  urged,  however,  "that  there  is  a  clearly-defined 
distinction  between  the  acts  of  a  cashier  or  president  of 
a  bank,  in  issuing  its  paper,  and  that  of  any  ordinary 
agent."  There  are  dic/a  in  some  of  the  opinions  cited 
which,  without  attempting    to  define  it,  assert    in  gen- 


B  CAS]  OFFICERS  591 

Lamson  ct  al.  i'.  Beard 

eral  terms  that  there  is  a  distinction.  For  instance, 
in  Bank  of  New  York  Nat.  Banking-  Ass'n  v.  Amer- 
ican Dock  &  Trust  Co.,  supra,  in  addition  to  what  we 
have  already  quoted  in  reference  to  the  case  of  Goshen 
Nat.  Bank  v.  State,  the  court  said  :  "And  we  also 
held,  for  the  reason  therein  stated,  that  there  was  a 
difference  in  the  case  of  bank  or  cashier's  drafts  from 
most  cases  of  ag-ency."  There  is  a  plain  difference  in 
the  fact  that  such  drafts,  once  they  have  been  issued, 
are  commercial  paper,  and  may  be  accepted  in  trade 
and  commerce  without  inquiry  into  the  consideration 
for  their  issue.  No  other  basis  for  a  distinction  is 
sug-g-ested  in  Goshen  Nat.  Bank  v.  State,  and  that 
difference,  it  is  to  be  observed,  is  not  in  the  character 
or  extent  of  theagfent's  authority,  but  in  the  nature  of 
the  subject  on  which  it  is  exercised.  It  is  true,  as 
there  said,  that  "bank  or  cashier's  drafts  are  used  so 
enormously  at  the  present  time  in  the  payment  or 
settlement  of  debts,  or  in  other  commercial  transac- 
tions, that  they  have  almost  acquired  the  characteristics 
of  money."  An  officer  of  a  bank,  however,  has  no 
rig-ht  to  appropriate  the  money  of  the  bank  to  his  indi- 
vidual uses,  and,  thoug-h  a  creditor,  when  offered 
money  by  his  debtor,  ordinarily  may  accept  it  without 
inquiry,  yet  if,  at  the  time  he  receives  it,  he  is  told  or 
knows  that  it  belongfs  to  another,  for  whom  his  debtor 
is  an  ag'ent  or  trustee,  on  the  plainest  principles  he 
acquires  no  title  as  ag^ainst  the  true  owner.  If, 
for  instance,  Cassatt  had  sent  to  the  plaintiffs  in  error 
money  of  the  bank,  instead  of  drafts,  advising-  them 
that  it  belong-ed  to  the  bank,  there  could  be  no  question 
of  their  liability  to  make  restitution  ;  and  in  what 
respect  is  their  position  better  as  presented  than  it 
would  be  on  the  facts  supposed,  even  conceding-  that 
the  drafts  sent  them  were  the  same,  or  "almost  the 
same,"  as  money?  The  drafts  bore  proof  on  their  face 
that  they  were  drawn  upon  the  funds  of  the  bank  ; 
and  that  they  were  not  drawn  in  the  course  of  the 
bank's  business  but  in  discharg-e  of  individual  liabil- 
ities of  the  president  of    the  bank  to  themselves,  they^ 


592  OFFICERS  [vol  I 

Larasoii  et  al.  v.  Beard 

of  course,  understood.  They  therefore  knew  that, 
unless  there  had  been  conferred  upon  Cassatt  an 
unusual  and  special  authority,  like  that  g-iven  the 
cashier  in  Goshen  Nat.  Bank  v.  State,  sii^ra,  to  sig-n 
and  issue  drafts  of  the  bank  in  his  private  transactions, 
the  paper  sent  them  was  unauthorized,  and  that  for  the 
proceeds  thereof  they  would  be  liable  to  the  bank  or 
its  representatives. 

It   is   evident,  however,  that  the  drafts   in  question, 
when  offered  the  plaintiffs  in  error,  were  not  commer- 
cial paper,  capable  of  treatment  as  money, 
(oiiiiiiermi Papor    and  that  the  considerations  of  public  policv 

—  Bona  Fide  Hold-  i-i,i  ',111  c  1 

m  Public  Policy,  on  which  the  oo)ia  fide  holder  or  such  paper 
is  protected,  even  though  the  rig^hts  of  an 
antecedent  holder  be  questionable,  have  no  application 
or  relevancy  to  the  case.  The  drafts  were  drawn  in 
favor  of  plaintiffs  in  error,  and  until  accepted  by  them 
they  were  not  contracts,  and  by  accepting-  them  they 
did  not  become  assig-nees  or  purchasers  of  existing- 
oblig-ations,  but  simply  parties  to  the  original  execution 
thereof,  into  whose  rights  the  way  to  full  inquiry  is 
open,  unless  closed  by  some  estoppel  outside  of  the 
paper  itself,  whatever  its  form.  A  primary  party  to 
the  execution  of  instruments  originated  as  these  were 
cannot  be  a  "'bona  fide  purchaser,"  in  the  sense  of  the 
law  merchant,  and  to  hold  the  payee  of  such  paper 
responsible  for  the  proceeds  received  upon  his  own 
neg^otiation  of  it  to  a  third  party,  who  will  be  presumed 
to  be  an  innocent  purchaser,  no  more  tends  to  discredit 
the  paper  as  an  agency  of  business,  than  it  tends  to 
impair  the  value  of  money  as  a  medium  of  exchang^e  to 
hold  one  who  receives  it  wrongfully  accountable  to  the 
rightful  owner.  If  a  bank  president  or  cashier,  because 
possessed  of  a  g-eneral  power  to  sign  drafts,  may  draw 
drafts  of  the  bank  in  favor  of  his  individual  creditor,  and 
it  is  to  be  said  that  "there  is  nothing-  unusual  or  suspi- 
cious in  this  way  of  making-  the  draft  payable  to  the  cred- 
itor of  the  cashier  or  president  who  draws  it,"  then  in 
Claflin  V.  Bank,  25  N.  Y.  293,  for  all  we  can  see,  it  might 
just   as    well   have  been   said    that    there    was  nothing* 


B  CAS]  OFFICERS  593 

Lamson  et  al.  v.  Beard 

unusual  or  suspicious  in  the  acceptance  or  certification 
by  the  president  of  the  bank  of  a  check  or  draft  drawn 
by  himself.  The  power  of  such  an  officer  to  draw 
drafts  of  his  bank  upon  others  is  no  g^reater  than  his 
authority  to  accept  the  checks  or  drafts  of  others  upon 
his  bank  ;  yet  in  that  case  it  was  held  that  the  g-eneral 
authority  of  the  president  of  the  bank  to  certify  checks, 
drawn  upon  it  did  not  extend  to  checks  drawn  by 
himself,  and  it  was  declared  not  to  be  necessary  for 
the  principal  in  such  case  to  show  that  the  ag^ent  had 
acted  unfairly  or  .  that  he  himself  had  sustained  an 
injury,  but  that  the  act  of  the  ag-ent  is  deemed  to  be 
unauthorized,  and  the  contracts  void.  We  ag-ree  with 
counsel  for  the  defendant  in  error  that  the  concern  of 
the  courts  should  not  be  to  make  it  easy  for  persons  in 
fiduciary  positions  to  make  way  with  that  which  is 
committed  to  their  care,  by  relaxing-  this  salutary  rule, 
throug-h  considerations  of  the  supposed  necessities  of 
business  and  commerce,  and  that  the  rule  should  not  be 
suspended,  where  the  opportunities  for  breach  of  trust, 
are  larg-est.  merely  because  they  are  larg-e.  The  best 
public  policy  requires  that  bank  officers  be  rigfidly 
held  to  the  ordinary  and  well-understood  rule.  There 
is,  we  believe,  no  g-ood  reason  to  the  contrary. 

In  the  first    case,  where    there  was   a  trial  by  jur}' 
and  a  g-eneral  verdict,    reference  is  made  to  Cassatt's. 
own  testimon}^  for  proof  that  he  "had  authority  to  draw 
drafts  to  his  own  or   his  creditor's   order, 
upon   payments   by  him  to  the  bank  for  the  Banl-rDrlmh. 
same,"    and  on   this  assumption,   it   is  con-  jji* <>wn Behair- 
tended,    on  the  authority   ot  Hanover  Nat. 
Bank  v.  American  Dock  &  Trust  Co.,  and  like  cases, 
that  the  fact  of  drawing  the  drafts  was  a  representation, 
on  which  the  plaintiffs  in  error  had  a  rig-ht  to  rely,  that 
such  payments  had  been  made.     Whether  he  had  such 
authority  was  a  question  of  fact,  of  v^'hich  the  verdict 
is  conclusive,   unless  material  error  of  law  occurred  at 
the  trial.     The  testimony  referred  to  is  quite  indefinite 
and  uncertain,  but,  if  it  affords  ground  for  an  inference 
that  Cassatt  did  in  fact  draw  drafts  to  his  own  order, 

B  CAS — 38 


594  OFFICERS  [vol  I 

Ivamson  et  al.  v.  Beard 

or  in  favor  of  his  creditors,  it  shows  no  basis  whatever 
for  a  belief  that  he  did  so  with  the  knowledg^e  of  other 
officers  of  the  bank.  In  the  case  last  referred  to  there 
was  proof  that  the  president  of  the  warehouse  company 
had  issued  receipts  to  himself  before  the  one  in  ques- 
tion, and  there  was  evidence  of  facts  and  circumstances, 
sufficient  to  go  to  the  jury,  tending-  to  show  that  he  had 
authority  to  do  so.  It  being-  apparent  on  the  face  of  the 
drafts  here  in  question  that  they  were  drawn  upon  the 
funds  of  the  bank,  it  was  impossible  for  the  plaintiffs 
in  error  to  receive  them  in  discharg-e  of  Cassatt's  indi- 
vidual oblig-ations  to  themselves  v^nthout  being-  put 
upon  inquiry'  whether  the  president  had  in  fact  the 
authorit}^  which  he  assumed  to  exercise  ;  and  it  was 
not  enough  to  make  inquiry  of  him,  nor  permissible  to 
rely  upon  the  implied  representation  deducible  from 
the  execution  of  the  drafts.  That  the  execution  of 
the  drafts  by  the  president  of  the  bank  in  his  own 
interest  was  without  authority,  and  that  the  plaintiffs 
in  error  were  not,  and  could  not  have  been,  innocent 
holders,  the  evidence  was  without  conflict,  and  so  clear 
that  the  court  mig-ht  have  directed  a  verdict  in  favor  of 
the  plaintiff  ;  and  on  this  view  of  the  case  the  other 
questions  discussed,  which  in  themselves  are  of  minor 
importance,  lose  all  sig-nificance.  It  is  said  that  "the 
question  of  g-ambling  was  an  issue  in  the 
case,"  and  the  refusal  of  a  special  request 
for  instruction  on  the  subject,  it  is  urged,  was  mate- 
rial error.  No  such  issue  appears  in  the  pleading-s, 
and  no  mention  of  the  subject  is  found  in  the  court's 
charge  to  the  jury.  In  fact,  however,  by  necessary 
implication,  the  question  was  excluded  from  consider- 
ation when  the  jur}^  was  told  that  the  plaintiff  could 
recover  only  upon  proof  that  Cassatt,  without  the 
authority,  knowledge,  consent,  or  acquiescence  of  the 
board  of  directors  of  the  bank,  misapplied  the  moneys 
•of  the  bank  in  question  to  his  own  use,  and  that  the 
defendants  had  knowledge,  or  were  aware  of  such  facts 
as  would  amount  to  knowledge  on  their  part,  that  he 
was  so   misapplying-  the  money  of  the  bank  ;  and   the 


B  CAS]  OFFICERS  595 

Mead  v.  Pettigrew 

statement  that  the  defendants  must  have  had  such 
knovvledg-e  was  repeated  in  substantially  the  same 
words  and  with  equal  clearness  in  a  separate  charg-e. 
In  short,  the  controlling-  question  was  fairly  submitted 
to  the  jury,  and,  it  is  clear,  was  rig-htly  decided.  The 
allowance  of  interest  was  proper. 

The  judgment  in  each  of  the  cases  is  affirmed. 


Officer  of  Corporation  Paying  Personal  Debt  with  Company's 
Securities — Notice  to  Purchaser. — The  general  rule  is  that  one  who 
receives  from  an  officer  of  a  corporation  the  notes  or  securities  of 
such  corporation,  in  payment  of,  or  as  security  for,  a  personal  debt 
of  such  officer,  does  so  at  his  peril.  Prima  facie  the  act  is  unlawful, 
and  unless  actually  authorized  the  purchaser  will  be  deeined  to  have 
taken  them  with  notice  of  the  rights  of  the  corporation.  Wilson  v. 
Metropolitan  R.  Co.,  120  N.  Y.  145,  32  Am.  &  Eng".  Corp.  Cas.  187. 
17  Am.  St.  Rep.  625  ;  Garrard  v.  Pittsburg-h  &  C.  R.  Co.,  29  Pa.  St. 
154  ;  Pendleton  v.  Fay,  2  Paig-e  (N.  Y.),  202  ;  Shaw  v.  Spencer,  100 
Mass.  388. 


Mead 


Pettigrew. 

[Supreme  Court  of  South  Dakota,  April  /j,  i8gg.) 

General  Denials. — A  mere  general  denial  in  an  answer  of  every 
"material"  allegation  in  the  complaint  is  bad. 

Banks — Subscription  Note — Authority  of  President  to  Release 
Maker.* — The  president  of  a  bank  in  issuing'  shares  of  its  stock  for 
a  negotiable  note  payable  to  the  bank  made  an  agreement  with  the 
maker  that  he  should  not  be  called  upon  to  pay  the  note.  Held, 
that  the  president  had  no  authority  to  make  such  agreement,  and 
that  in  an  action  on  the  note  against  the  maker,  bj'  its  bona  fide 
purchaser  froin  the  bank,  a  verdict  was  properly  directed  for  plain- 
tiff. 

Costs. — Where  attention  is  not  called  to  the  fact  that  the  judg- 
ment exceeds  the  proper  amount  until  appellant's  brief  is  filed,  its 
modification  will  not  affect  respondent's  costs. 

Appeal  by  defendant  from    Hughes    county  circuit 
court.     Mod i fie  d. 

*See  note  at  end  of  case. 


5%  OFFICERS  [vol  I 

Mead  v.  Pettigrew 

Joseph  Donahue  (Dillon  &  Sutherland^  of  counsel), 
for  appellant. 

Horner  &  Stewart^  for  respondent. 

HaneY,  J.  Plaintiff  states  his  cause  of  action  as 
follows:  "(1)  That  the  First  National  Bank  of  Ft. 
Pierre,  South  Dakota,  was  on  January  9,  1894,  and  for 

„. , ,  a  lonof  time  prior  thereto,  and  until  October 

(lasf!  stated.  ,      ^  „ '"' .  ^  .  .        ,  .         .     ,  . 

1,  1894,  a  corporation  org-auized  and  existing- 
under  the  laws  of  the  United  States  of  America.  (2) 
That  the  First  Bank  of  Ft.  Pierre,  South  Dakota,  was 
during-  all  of  the  times  hereinafter  mentioned  a  corpo- 
ration org-anized  and  existing-  under  the  laws  of  the 
state  of  South  Dakota.  (3)  That  on  January  9,  1894, 
at  Ft.  Pierre,  South  Dakota,  the  defendant,  F.  W. 
Pettig-rew,  by  his  promissory  note,  promised  to  pay  to 
the  order  of  the  First  National  Bank  of  Ft.  Pierre, 
South  Dakota,  one  thousand  dollars  on  January  9, 
1895,  after  date,  with  interest  thereon  at  the  rate  of 
6  per  cent,  per  annum  from  maturity  until  paid.  (4) 
That  on  or  about  the  1st  day  of  October,  1894,  the 
said  First  National  Bank  of  Ft.  Pierre,  South  Dakota, 
sold  and  delivered  said  note  to  the  First  Bank  of  Ft. 
Pierre,  South  Dakota,  for  a  valuable  consideration  ; 
that  thereafter,  and  before  the  maturity  of  said  pro- 
missory note,  and  on  or  about  the  12th  day  of  December. 
1894,  the  said  First  Bank  of  Ft.  Pierre,  South  Dakota, 
made  an  assig-nment  of  all  its  property,  for  a  valuable 
consideration,  for  the  benefit  of  its  creditors,  to  this 
plaintiff,  and  among-  the  property  so  assig-ned  was  the 
promissory  note  described  in  parag-raph  3  of  this  com- 
plaint. (5)  That  this  plaintiff  is  the  owner  and  holder 
of  said  note,  and  that  the  defendant  has  not  paid  the 
same,  nor  any  part  thereof,  and  the  same  is  due." 
The  only  denial  in  the  answer  is  stated 
thus  :  "That  he  [the  defendant]  denies 
each  and  every  material  alleg-ation  in  said  complaint, 
except  as  hereinafter  specifically  admitted."  The 
authorities  are  conflicting-  concerning-  the  effect  of  the 
word  "material,"  when  used  as  above.  1  Enc.  PI.  <Sc 
Prac.  782  ;  Dole  v,  Burleig-h,    1    Dak.    227,    46  N.  W. 


B  CAS]  OFFICERS  597 

Mead  v.  Pettigrew 

692.  We  think  the  denial  is  bad,  and  that  every 
material  fact  alleg-ed  in  the  complaint  must,  for  the 
purposes  of  this  action,  be  taken  as  true.  Comp. 
Laws,  §  4933. 

The  affirmative  defenses  and  evidence  will  be  con- 
sidered in  connection  with  the  ruling-  of  the  court  upon 
plaintiff's  motion  to  direct  a  verdict  in  his  favor, 
which  was  g-ranted.  In  October,  1894,  the  assets  of 
the  First  National  Bank  of  Ft.  Pierre  were  transferred 
to  the  First  Bank  of  Ft.  Pierre.  At  that  time  Kug-ene 
Steere  was  president  of  the  former  bank,  and  had 
been  such  officer  for  about  four  years.  Mr.  Steere, 
testifying'  as  a  witness  for  defendant,  states  that  the 
First  National  Bank  went  out  of  existence  October  1, 
1894,  when  the  First  Bank  came  into  existence  ;  that 
the  stockholders  of  each  were  practically  the  same  ; 
that  he  was  promoter  and  org-anizer  of  the  First  Bank  ; 
and  that  he  had  full  knowledg-e  in  regard  to  the  notes 
and  liabilities  derived  from  the  former  corporation. 
Concerning-  the  note  in  suit,  he  says  :  "I  first  saw  it 
when  it  was  drawn,  January  9,  1894.  At  the  time  the 
bank  was  started,  in  1890,  we  had  to  have  five  direct- 
ors in  the  bank,  and  we  could  have  only  three  directors 
who  had  money  enough  as  directors,  as  they  each  had 
to  have  $1,000  stock  in  the  bank.  So  I  got  George 
Mathieson,  and  I  have  forgotten  who  the  other  was, 
now,  but  I  think  it  was  Mr.  Kleiner,  to  act  as  direct- 
ors ;  and  I  took  their  notes,  and  issued  them  stock  of 
$1,000,  and  put  in  the  mone}^  myself,  so  they  could  act 
as  directors,  and  still  hold  stock  in  the  bank.  After- 
wards, I  think,  Mr.  Kleiner  went  to  Washington,  and 
I  got  Mr.  Pettigrew  to  take  his  place  under  the  same. 
I  took  Mr.  Pettigrew's  note,  and  issued  him  the  stock, 
and  put  in  the  money  myself  in  the  first  place,  and 
kept  it  for  several  years,  until  this  final  note  was 
taken,— I  think,  about  that  time.  Mr.  Pettigrew  was 
connected  with  the  bank.  He  was  connected  as  director 
of  the  bank,  and  the  bank  held  his  note,  and  he  held 
his  stock.  During  this  period  dividends  were  declared 
by  the  bank,  but  none  received  by  defendant.     He  did 


598  OFFICERS  [vol  I 

Mead  v.  Pettigrew 

not  receive  any  money,  but  he  received  stock  of  the 
bank.  The  stock  was  issued  to  balance  the  note.  The 
stock  was  issued  for  the  note.  When  defendant  g-ave 
rae  this  note,  I  had  this  ag-reement,  that  he  would  not 
be  called  upon  to  pay  it.  I  was  president  of  the  First 
Bank  of  Pt.  Pierre  from  the  time  of  its  org-anization 
until  the  time  of  the  assigfnment.  I  carried  Mr.  Petti- 
grew's  note  which  represented  the  stock  for  about  three 
years,  and  the  bank  carried  it  for  the  rest  of  the  time. 
I  carried  the  $1,000  myself  for  about  three  and  one-half 
years,  and  then  the  bank  carried  it  and  carried  Mr. 
Pettigfrew's  note  to  represent  the  amount  of  money. 
Mr.  Pettigfrew  g-ot  stock  in  the  First  National  Bank  in 
February,  1890,  and  the  stock  was  issued  to  him  at 
that  time.  When  Mr.  Pettig-rew  g-ave  this  $1,000  note 
to  the  First  National  Bank,  it  was  to  represent  the 
$1,000  in  money  he  had  g-otten  from  the  bank  for  the 
stock  held.  He  had  the  stock  of  the  bank  all  the  time 
the  bank  was  in  operation."  Witness,  on  being  shown 
E^xhibit  2,  and  refreshing  his  recollection,  testified  that 
Mr.  Pettigrew  did  not  return  his  stock  in  the  First 
National  Bank  of  Ft.  Pierre  until  after  March  14,  1894, 
and  that  he  held  the  stock  on  January  9,  1894,  when  he 
executed  Exhibit  A  (the  note  in  suit),  and  that  he 
returned  the  stock  after  March  14,  1894,  and  there  was 
stock  of  the  First  Bank  of  Ft.  Pierre  issued  to  him  in 
place  of  the  stock  in  the  First  National  Bank.  Mr. 
Pettigrew  acted  as  director  in  the  First  National  Bank 
of  Ft.  Pierre,  and  took  part  in  its  proceedings  during- 
all  of  the  time  the  bank  vv'as  in  existence.  Defendant, 
on  his  own  behalf,  testified  :  *'Idid  not  receive  any 
consideration  for  the  note  sued  upon.  Mr.  Steere  came 
to  me  in  Ft.  Pierre  one  day,  and  said  that  he  was  in 
need  of  a  director  for  the  First  National  Bank,  and 
wanted  me  to  act  as  director  ;  and  I  told  Mr.  Steere  that 
I  had  no  money  to  g^o  into  the  banking  business.  'Why, ' 
he  says,  'you  do  not  need  money.'  'Well,'  I  says,  'I 
don't  know  how  to  g^o  into  the  banking  business  with- 
out money.'  'Why,'  he  says,  'we  will  have  to  have 
some  local    directors,  and  our  directors  are  all  nonresi- 


B  CAS]  OFFICERS  599 

Mead  v.  Pettigrew 

dents,  and  it  would  be  a  great  accommodation  to  me  if 
you  will  act.'  Then  he  suo-o-ested  I  g-ive  him  my  note 
"for  $1,000,  and  that  I  could  act  as  director.  When  I 
moved  away  from  Ft.  Pierre,  I  told  Mr.  Steere  that  I 
was  gfoing-  back  to  Sioux  Falls,  and  could  be  no  longer 
of  any  service  to  him  in  the  bank,  and  requested  him  to 
secure  some  other  director,  and  release  me  from  what- 
ever obligation  I  mig-ht  be  under,  and  he  requested  that 
I  should  hold  on  a  while  ;  and  in  1894,  in  answer  to  my 
various  importunities,  and  at  his  request,  this  note  was 
given  to  Mr.  Steere,  and  he  sent  me  the  first  note  that 
was  given.  He  requested  me  to  return  the  stock  in 
the  First  National  Bank  of  Ft.  Pierre,  which  I  did, 
about  May  12,  1894.  It  was  ag-reed  between  Mr. 
Steere  and  me  that  I  should  never  be  called  upon  to 
pay  the  note  ;  that  the  note  would  not  be  held  as  any 
part  of  the  assets  of  the  bank,  nor  as  an  oblig-ation  ; 
and  the  stock  which  I  held  I  did  not  consider  as  mine, 
and  never  received  any  dividends  upon  it,  and  I  never 
paid  any  interest  upon  the  note.  I  was  never  called 
upon  to  pay  any  assessments,  and  never  received  an}- 
dividends,  upon  the  stock. 

The  foregoing  statement  is  believed  to  be  a  fair 
summary  of  the  material  evidence,  and,  taken  with  the 
facts  established  by  the  pleading-s.  substantially  pre- 
sents the  only  defense  attempted  to  be  shown  by 
defendant.  Such  defense  has  been  stated  as  favorably 
to  defendant  as  the  record  will  permit.  Upon  the  facts 
thus  determined,  did  the  circuit  court  err  in  directing- a 
verdict  for  plaintiff  ?  We  think  not.  Plaintiff  is 
certainly  in  no  worse  position  than  was  the  First  Na- 
tional Bank.  Steere  testifies  that  defendant  did  not 
receive  any  money  for  the  note,  but  he  received  stock 
of  the  bank.  The  stock  was  issued  for  the  note.  This 
stock  was  not  returned  until  March  14,  1894.  Defend- 
ant held  it  when  the  note  in  suit  was  executed,  and 
when  he  returned  it  he  received  stock  of  the  new  bank. 
Steere  says  he  carried  defendant's  note  which  repre- 
sented the  stock  for  about  three  years,  and  the  bank 
carried  it  for  the  rest  of  the  time.     He  further  says,  "I 


600  OFFICERS  [vol  I 

Mead  z>.  Pettigrew 

took  Mr.  Pettigrew 's  note,  and  issued  him  the  stock, 
and  put  in  the  money  myself  in  the  first  place,  and 
kept  it  for  several  years,  until  this  final  note  was 
taken."  The  only  reasonable  inference  from  all  the 
evidence  is  that,  when  the  new  note  was  taken,  Steere 
withdrew  the  amount  of  the  note,  and  that  thereafter 
the  bank  held  it,  and  defendant  continued  to  hold  the 
stock.  The  stock  was  the  consideration  of  the  note, 
and  when  it  was  received  by  the  bank  the  bank  evidently 
parted  with  value.  Under  these  circumstances,  was 
Steere,  as  an  officer  of  the  bank,  authorized  to  make  an 
agreement  with  defendant  that  he  should  not  be  called 
upon  to  pay  the  note  ?  It  was  properly  held  by  the 
territorial  supreme  court  "that  officers  of  banks  have 

not  the  power  to  excuse  or  limit  the  leg-al 
fion'^iote-'""^^'^''*'  obligations  of  persons  to  the  banks  they 
5?nt'to  Bdl»»r*'"  1-epresent,  by  ag-reeing-  w^th  them  that  they 
Maker.  shall  uot  be  held  liable  or  called  upon  to  pay 

the  oblig"ations  which  they  make,  either  as 
principal  debtors  or  accommodation  makers  or  indorsers, 
and  on  the  credit  of  which  the  bank  has  parted  with  its 
funds."  Thompson  v.  McKee,  5  Dak.  172,  37  N.  W. 
367.  This  principle  is  applicable  to  the  case  at  bar. 
The  evidence  discloses  that  the  First  National  Bank 
parted  with  value  when  it  obtained  the  note  sued  upon, 
and  the  complaint  shows  that  the  First  Bank  purchased 
it  for  a  valuable  consideration.  We  think  Mr.  Steere 
was  not  authorized  to  make  the  agreement  mentioned  in 
his  testimony,  and  that  the  court  below  was  rig-ht  in 
directing-  a  verdict  for  plaintiff.  The  result  thus 
reached  commends  itself  as  being-  consistent  with  pru- 
dence and  fair  dealing*.  Men  should  not  put  promissory 
notes  in  circulation  which  they  do  not  intend  to  pay. 
If  the  contract  reg-arding-  defendant's  bank  stock  was  as 
he  now  claims  it  to  have  been,  such  contract  should  have 
been  evidenced  by  a  writing-  which  truly  expressed  its 
terras,  and  not  by  an  instrument  of  entirely  different 
import.  Defendant's  want  of  ordinary  prudence  is 
alone  responsible  for  any  loss  he  may  sustain  by  reason 
of  his  connection  with  these  bankiu"-  institutions. 


B  CAS]  OFFICERS  601 

Valdetero  v.  Citizens'  Bank  of  Jennings 

It  is  conceded  that  the  judgriient  exceeds  by  $60  the 
amount  due  when  it  was  rendered.  It  should  be 
reduced   from  $1,141   to  SI, 081.     As  atten- 

nil  1     •  •  C»S(S. 

tion  was  not  called  to  this  error  in  computa- 
tion until  appellant's  brief  was  filed  in  this  court,  the 
modification     will     not    affect    respondent's    costs    or 
disbursements.      The  action   is  remanded,    with  direc- 
tions to  modify  the  judg-ment  as  indicated  herein. 

NOTE. 

President — Release  and  Satisfaction  of  Claims. — The  president  of 
a  corporation  has,  of  himself,  no  authority-  to  release  subscriptions 
to  the  stock  of  the  corporation.  Cnstar  v.  Titusville  Gas,  etc.,  Co., 
63  Pa.  St.  381.  The  president  of  a  bank  has  no  implied  authority' 
to  sui-render  or  release  the  claim  of  the  corporation  ag-ainst  any 
one  ;  Olnej'  v.  Chadsey,  7  R.  I.  224;  Hodge  v.  First  Nat.  Bank,  22 
Gratt.  (Va.),51;  nor  has  the  president  of  an  insurance  company 
any  such  authority-;  Brouwer  v.  Appleby,  1  Sandf.  (N.  Y.),158; 
nor  has  the  president  any  power  to  staj'  the  collection  of  an  execu- 
tion in  favor  of  the  corporation.     Spjker  v.  Spentz,  8  Ala.  m. 


Valdetero 


Citizens'  Bank  of  Jennings  et  al. 

{Supreme  Court  of  Louisiana,  May  ij,  i8gg.) 

Cashier — Power  to  Bind  Bank  by  Contract.*- — While  the  cashier, 
it  is  true,  does  not  represent  his  bank  away  from  its  domicile,  by 
continuing  the  act  undertaken  ^vhile  awaj^  after  his  return  without 
objection  on  the  part  of  the  directors,  if  the  latter  sanction  com- 
pleting the  act,  it  becomes  the  act  of  the  bank. 

Checks — Stopping  Payment  of. — A  check  issued  by  the  bank 
should  not  be  countermanded  as  to  its  payment  without  cause. 

Same — Consideration — Case  at  Bar. — A  loan  promised  by  a  cashier, 
personally  and  as  cashier,  to  enable  one  to  go  in  search  of  the 
bank's  president,  who  is  sick  in  body  and  mind,  and  has  disappeared, 
has  consideration  enough  to  hold  the  bank  for  the  promise  of  its 
cashier,  for  which  loan  the  latter  issued  a  check,  and,  without  cause 
shown,  stopped  payment  without  proof  enough  of  anj'  cause  for 
stopping  it,  after  the  one  who  went  in  search  had  left,  and  was  per- 
forming his  part  of  the  agreement. 

(Syllabus  by  the  Court.) 

*See  note  at  end  of  case. 


602  OFFICERS  [vor,  I 

Valdetero  v.  Citizens'  Bank  of  Jennings 

Appeal  by  both  parties  from  Calcasieu  parish  judi- 
cial district  court.     Affirmed. 

Schiviiig  &  Moore  and  Foiiruet  &  Fournet  for  plain- 
tiff. 

Cliue  &  Cline  and  Pujo  &  Moss,  for  defendants. 

Breaux,  J.  Plaintiff  sued  for  daniag^es  in  the  sum 
of  $10,000,  claimed  as  having- grown  out  of  the  defend- 
ants' refusal  to  honor  a  check  drawn  by  the  former  on 
the  Citizens' Bank  of  Jenning-s.  It  appears 
that  plaintiff  left  his  home  in  Jenningfs,  and 
repaired  to  New  Orleans,  in  search  of  Dr.  K.  M.  Burke. 
Plaintiff  learned  while  he  was  in  New  Orleans  that  the 
missing-  Dr.  Burke  was  in  Tampa,  Fla.  The  doctor 
was  a  very  sick  man,  both  in  body  and  mind.  Plaintiff 
was  his  friend  and  the  friend  of  the  family.  He  had 
been  in  his  employ  for  many  years,  and  their  business 
relations  were  close.  The  defendant  Hoffman  also 
concerned  about  the  absence  of  Dr.  Burke,  came  to 
New  Orleans,  and  met  plaintiff.  He  (Hoffman)  was 
cashier  of  the  Citizens'  Bank  of  Jenning"s,  and  the 
missing-  Dr.  Burke  was  its  president.  Hoffman  particu- 
larly was  put  out  by  the  disappearance  of  the  president, 
whom  he  charg-ed  with  having-  taken  funds  to  which 
he  had  no  rig-ht.  After  some  talk  over  the  situation, 
the  defendant  Hoffman,  in  the  presence  of  Dr.  Burke's 
wife,  who  was  in  New  Orleans,  and  who  testified  in 
the  case  as  a  witness,  induced  plaintiff  to  g-o  to  Florida, 
and  bring-  back  Dr.  Burke.  He  (Hoffman)  promised 
Valdetero,  as  an  inducement,  that  he  would  honor  the 
latter's  check  on  the  Citizens'  Bank  for  the  sum  of  S300 
in  favor  of  L.  N.  Brunswig-  &  Co.,  merchants  in  New 
Orleans;  whereupon  plaintiff  drew  his  check  in  favor 
of  Brunswig-  &  Co.,  and  left  for  Florida.  During-  his 
absence  the  check  was  not  honored,  and  the  defendant 
cashier,  Hoffman,  failed  to  carry  out  his  promise.  He 
returned  plaintiff's  check  to  Brunswig-  &  Co.,  and  di- 
rected them  to  draw  a  draft  on  plaintiff  for  $300,  and 
forward  it  to  him  (Hoffman)  at  Jenningfs;  that  he  would 
hen    remit  for  it    by    New    Orleans    exchang-e.     The 


B  CAS]  OFFICERS  603 

Valdetero  v.  Citizens'  Bank  of  Jenning-s 

draft  was  drawn  by  Brunswig"  &  Co.,  and  forwarded 
to  the  bank.  Upon  its  receipt  the  bank  issued  a  check, 
sig-ned  by  the  cashier,  on  the  State  National  Bank  of 
New  Orleans,  which  was  mailed  to  Brunswig"  &  Co.; 
but,  before  it  could  be  presented  and  paid,  payment  was 
stopped  by  Hoffman.  In  explanation  of  his  action  in 
thus  refusing-  to  pay  the  check,  Hoffman  wrote  to 
Brunswig"  &  Co.,  charg"iag"  plaintiff  with  having"  made 
false  representations,  and  having-  drawn  without  au- 
thority on  the  bank  at  Jenning"s,  in  which  he  had  no 
funds.  Defendants,  in  answer  to  plaintiff's  petition, 
pleaded  the  g"eneral  denial,  and  Hoffman,  in  the  same 
answer,  pleaded  that  he  did  not  seek  to  injure  the 
plaintiff;  that,  at  the  time  that  plaintiff  alle,g"ed  that 
authority  was  g"iven  to  him  to  draw  on  the  Citizens' 
Bank,  he  (plaintiff)  and  Mrs.  Burke,  the  president's 
wife,  as  well  as  respondent  Hoffman,  were  in  the  city 
of  New  Orleans,  searching-  for  Dr.  Burke,  w^ho  was 
larg"ely  indebted  to  the  bank,  of  which  he  was  presi- 
dent, having",  without  the  knowledg"e  of  the  bank's 
cashier  (or,  rather,  officers),  drawn  from  the  vaults  of 
the  bank  and  failed  to  charg"e  himself  with  the  sum  of 
$1,500;  that  he  (the  cashier)  had  reason  to  believe  that 
he  still  had  the  amount  in  his  possession;  that  he  was 
in  the  city  of  New  Orleans  ;  and  that  he  had  deter- 
mined to  have  him  arrested.  Here,  at  that  meeting",  he 
was  informed  by  the  plaintiff  that  Dr.  Burke  was  not 
in  New  Orleans,  but  in  Florida,  and  plaintiff  said  he 
was  willing"  to  g-o  to  Tampa,  Fla.,  and  bring"  him  back, 
but  he  had  no  funds  ;  whereupon  defendant  Hoffman 
avers  that  he  promised  to  pay  the  traveling"  expenses 
of  plaintiff  in  g"oing"  in  quest  of  Dr.  Burke,  which  ex- 
penses he  did  not  believe  at  the  time  would  exceed 
$100.  He  also  avers  that  plaintiff  was  not  authorized 
by  him  to  draw  on  the  Citizens'  Bank  for  any  sum, 
other  than  the  sum  needful  to  bring-  back  Dr.  Burke  ; 
that,  after  the  check  was  presented  to  the  bank  at 
Jenning"s  for  payment,  he  (Hoffman)  returned  it,  and 
sent  a  form  of  draft  to  Brunswig"  &  Co.  to  be  sig-ned. 
it  being"  drawn  in  favor    of  the  Citizens'  Bank   of  Jen- 


(>04  OFFICERS  [vol  I 

Valdetero  v.  Citizens'  Bank  of  Jennings 

ning-s,  on  plaintiff  ;  that  this  form  was  filled  in  due 
course  of  business;  that  he  honored  it  by  issuing-  a 
check  of  his  bank  on  the  State  National  Bank  ;  but, 
before  it  was  presented  to  the  drawee  for  payment  at 
New  Orleans,  he  learned  that  $200  of  the  amount  was 
to  be  used  to  pa\^  an  indebtedness  of  Dr.  Burke  to  L.  N. 
Brunswig  &  Co.,  and  for  that  reason  he  at  once  dis- 
patched to  the  bank  and  to  Brunswig-  &  Co.,  stopping- 
the  payment  of  the  draft.  The  ownership  of  a  drug 
store  also  figures  in  this  case,  and  gives  rise  to  inciden- 
tal issues  of  the  case.  The  question,  as  relates  to  the 
drug-  store,  was  whether  defendant  Hoffman  knew,  or 
did  not  know,  that  the  store  was  owned  by  the  plain- 
tiff. Dr.  Burke  fell  sick  in  Florida,  and  died  a  few 
da\^s  after.  The  chief  issue  of  fact  is  whether  defend- 
ant Hoffman  promised,  in  the  name  of  the  bank,  to  pay 
the  check,  as  alleged  by  plaintiff,  and  whether  he  is 
also  personally  bound.  Plaintiff  swore  that  he  in- 
formed defendant  Hoffman  that  he  could  not  leave  for 
Florida  unless  his  indebtedness  to  Brunswig-  &  Co., 
of  $200,  was  taken  care  of  by  some  one,  as  it  would 
mature  during-  his  absence.  He,  in  addition,  said  to 
him  that  he  would  need  $100  for  his  expenses  ;  making 
the  $300,  for  which  he  requested  a  check,  which  he 
says  defendant  promised  to  honor.  He  swore  posi- 
tivel}^  that  he  informed  defendant  Hoffman  of  his 
indebtedness  to  Brunswig*  &  Co.,  and  it  was  only  after 
he  had  been  thoroughl}^  informed  that  Hoffman  prom- 
ised to  cash  the  check.  The  testimony  of  plaintiff 
on  this  point  is  corroborated  by  the  wife  of  Dr.  Burke, 
who  was  present,  and  said  she  heard  the  conversation. 
This  was  denied  by  defendant.  The  case  was  tried 
before  a  jury,  and  a  verdict  of  $175  was  found  in  favor 
of  the  plaintiff.  From  the  verdict  and  the  judgment 
of  the  court,  the  defendant  prosecutes  this  appeal. 

We,  in  the  first  place,  take  up  for  decision  the  ques- 
tion relating-  to  Hoffman's  personal  liability  vel  non. 
The  record  discloses  that  he  had  a  direct  interest  in 
the  return  of  Dr.  Burke,  or,  at  any  rate,  he  felt  that 
certain  interests  in   which  he  was  concerned  would  be 


B  CAS]  OFFICERS  605 

Valdetero  i'.  Citizens'  Bank  of  Jenning-s 

subserved  by  his  return.  He  was  particularly  anxious 
reg"ardiug-  his  return  to  Jenning-s,  and  quite  willing-  to 
expend  an  amount  to  find  out  where  he  was,  and  make 
his  coming-  back  certain.  When  informed  by  plaintiff 
as  to  his  whereabouts,  he  was  quite  willing-  to  advance 
to  plaintiff  the  expenses  of  the  trip  to  Tampa,  to  en- 
able him  to  go  in  search  of  Dr.  Burke.  The  defendant 
does  not  den}'^  that  he  promised  to  make  the  advances 
for  the  trip  to  Florida,  but  says  that  he  had  no  idea 
that  the  amount  needed  would  be  more  than  $100.  The 
verbal  testimony,  other  than  his  own,  and  the  letters, 
render  it  certain,  we  think,  that  he  was  to  see  to  the 
cashing-  of  a  draft  or  check  for  the  sum  of  S300,  as 
alleged  by  plaintiff.  It  is  evident,  we  think,  that  the 
defendant  changed  his  mind  after  his  return  from  New 
Orleans  to  Jenning-s,  and  for  some  reason  concluded 
that  the  return  of  Dr.  Burke  was  not  consideration 
enoug-h  to  justify  him  in  paying-  the  promised  loan  of 
$300.  He  adhered  to  his  promise  to  make  the  ad- 
vance sufficiently  after  his  return  to  write  to  Brunswig- 
&  Co.,  and  to  chang-e  the  name  on  their  check,  as 
before  stated,  and  after  their  answer  to  send  a  check, 
the  payment  of  which  he  subsequently  stopped.  The 
first  chang-e  made  as  to  the  form  of  the 
check,  and  the  order  not  to  pay  the  last  piiJm'nTor!'''"''' 
check,  as  well  as  defendant's  letters  regard- 
ing- plaintiff,  and  his  want  of  authority  to  draw  a  check 
as  he  had,  were  enoug-h  to  annoy  and  cause  worry  to 
any  business  man  regarding  his  credit  ;  and  we  are 
decidedly  of  the  opinion  that  plaintiff  had  cause  to  com- 
plain. The  ag-reement  between  plaintiff  and  this  de- 
fendant was  complete,  and  the  former  was  on  his  way 
to  Florida  to  perform  his  part  of  the  ag-reement.  It 
was  entirely  too  late  to  recall  the  promise.  Sf>  far  as 
the  record  discloses,  the  plaintiff  complied  with  his 
obligation.  At  the  risk  of  loss,  one  who  has  promised 
to  cash  a  check,  under  the  circumstances  here,  cannot 
escape  the  responsibility  by  shifting  his  position,  and 
contending,  in  the  face  of  positive  evidence  to  the  con- 
trar}^  that  the  amount  was  to  be  used  for  another  pur- 


606  OFFICERS  [vol  I 

Valdetero  v.  Citiaeiis'  Bank  of  Jennings 

pose  than  that  for  which  most  of  it  had  been  used.  A 
deliberate  charge  ao-ainst  one  that  he  has  drawn  a 
nec^otiable  instrument  without  authority,  when  it  is 
evident  that  he  was  fully  authorized,  g-ives  ground  for 
complaint,  and,  in  a  case  such  as  the  one  before  us 
for  decision,  for  damag-es.  We  have  noted  the  fact  that 
the  suit  was  broug-ht  against  the  defendant  Hoffman 
and  against  the  Citizens'  Bank  /?i  solido.  The  theory 
upon  which  the  latter  was  made  a  party  was  that  it 
had  acted  through  Hoffman,  its  cashier,  and 
I^,?"';'^'"-''?"'^'"  t»  that  his  utterances  and  acts  boun'd  the  bank. 

Kind  Bank  by  /^i-  -i  i  11  /-r\i' 

Contract.  Ordinarily  they  would  not.       1  his    cashier 

was  at  some  distance  from  the  bank's  place 
of  business,  and  the  presumption  is  that  away,  as  he 
was,  from  the  bank,  he  was  not  acting  under  the 
supervision,  direction,  and  control  of  the  board  of 
directors.  The  agreement  entered  into  between  Hoff- 
man and  plaintiff,  in  the  city  of  New  Orleans,  of  itself 
would  not  be  binding  on  the  bank,  in  our  judgment= 
Cashiers,  unless  authorized,  do  not  take  with  them 
from  place  to  place  the  agency  they  have  at  the  bank  ; 
but  this  cashier  returned  to  his  home  in  Jennings,  and 
there  resumed  the  functions  of  cashier,  with  all  its 
responsibilities.  He  continued  in  some  respects,  at 
least,  to  do  that  which  he  had  bound  himself,  without 
authority  perhaps,  while  away  from  the  bank,  to  do. 
In  order  to  meet  the  payment  of  the  $300,  and  to  com- 
plete the  advances  as  promised,  he,  as  cashier,  sent 
the  bank's  check,  payment  of  which  he  afterwards 
countermanded.  This  act  was  the  act  of  the  bank, 
and  no  one  else.  The  cashier  is  the  directing  agent  of 
the  bank  in  its  actual  management.  He  speaks  for  the 
bank,  and  is  usually  its  executive  officer  in  all  things 
not  specially  intrusted  to  the  directors.  "He  is  the 
general  manager,  and,  unless  his  operations  are 
restricted  by  the  directors,  he  is  for  many  purposes 
looked  upon  by  law,  and  he  is  treated,  as  if  he  were 
the  whole  body,  whom  he  has  power  to  bind,  even  by 
his  tortious  acts."  Grant,  Banks,  518.  It  vvas  at  the 
bank's  counter  that  the  cashier   issued  the    check.     It 


A 


-B  CAS]  OFFICERS  607 

Valdetero  v.  Citizens'  Bank  of  Jennings 

is  reasonable  to  presume  that  his  act  met  with  the  ap- 
proval of  the  board  of  directors,  and  that  proper  regis- 
try and  entries  went  into  their  books  with  their  sanc- 
tion. All  this  was  done  by  the  cashier  without  one 
word  of  objection  from  the  directors.  Plaintiff  and 
others  concerned  had  the  rig'ht  to  suppose  that  they 
were  dealino-  with  the  bank  that  had  made  the  act  of 
its  cashier,  while  absent,  its  own  after  his 
return.  It  must  be  borne  in  mind  that  Dr.  ?rr-"^frj?^';,-. 
Burke  was  the  president  of  the  bank,  and 
that  the  money  advanced  was  to  enable  plaintiff  to  go 
in  search  of  the  president,  who  was  a  debtor  to  the 
bank,  and  in  whose  return  the  bank  also,  it  may  be,  had 
some  interest,  and  for  whom  the  board  of  directors 
must  have  had  some  concern.  The  loan  to  plaintiff, 
or  rather  the  promised  loan,  by  cashing-  his  check  as 
before  stated,  was  not  out  of  the  usual  course  of 
business.  He  was  the  owner  of  a  drug-  store  in  Jen- 
ning-s,  and  had  done  some  business  with  the  bank. 
True,  his  name,  for  reasons  the  evidence  seeks  to 
explain,  did  not  fig^ure  in  public  as  the  owner  ;  but  it 
was  well  known  to  a  few  that  he  was  the  real  owner, 
and  not  Dr.  Burke,  whose  name  appeared  as  the  owner. 
Knowledg-e  of  this  fact  was  traced  to  some  of  the  offi- 
cers of  the  bank,  who,  plaintiff  contends,  had  full 
knowledg-e  of  his  ownership.  True,  this  drug-  store 
had  but  little  value,  yet  enoug-h  to  g-ive  a  limited 
standing-  to  plaintiff  as  a  merchant.  It  was  not  extra- 
ordinary, under  the  circumstances,  if,  as  we  think,  the 
bank  g-ave  its  approval  to  the  cashier's  acts,  as  alleg-ed. 
No  attempt,  as  we  take  it,  was  made  to  recall  this 
approval  (defendants  joined  in  one  answer),  save,  at 
the  last  moments  before  trial,  the  defendants  filed  a 
peremptory  exception  of  no  right  of  action,  on  the 
g-round,  "if  the  draft  was  drawn,  as  averred  by  plain- 
tiff, then,  in  that  event,  exceptor  avers  that  the  said 
Hoffman  was  acting-  beyond  the  scope  of  his  authority, 
and  was  not  authorized  to  bind  the  bank."  For  the 
purpose  of  its  trial,  the  averments  of  fact  of  plaintiff 
must   be  taken   as  true.     We  think  that  they  do  show 


608  OFFICERS  [vol  I 

Valdetero  :'.  Citizens'  Bank  of  Jenning-s 

that  defendant  was  acting-  within  the  scope  of  his 
authority  after  his  return  to  his  place  of  duty, 
and  that  the  evidence  does  not,  as  relates  to  the 
exception,  negative  the  allegations  of  plaintiff's  peti- 
tion, but,  on  the  contrary,  that  his  acts,  as  cashier, 
conformed  with  the  views  of  the  board.  The  jur\' 
fixed  the  damages  atS175.  They  were  of  the  vicinage, 
probably  knew  the  parties,  and  are  particularly  com- 
petent to  determine  the  amount  of  damages  in  such 
case.     The  judgment  is  affirmed. 

On  Application  for  Rehearing. 

(June  29.  1899.) 

Watkins,  J.  Plaintiff  prays  for  judgment  against 
the  Citizens'  Bank  of  Jennings  and  John  H.  Hoffman 
in  soli  do  for  the  sum  of  SI  0,000.  The  case  was  tried 
by  a  jury,  who  rendered  a  verdict  in  favor  of  the 
plaintiff,  and  against  the  defendants,  for  $175.  From 
this  judgment,  both  defendants  prosecute  an  appeal. 
In  this  court  the  appellee  filed  an  answer,  and  prayed 
for  an  increase  in  the  allowance  to  the  sum  of  S2,000. 
An  examination  of  the  case  led  this  court  to  believe 
that  the  verdict  and  judg-ment  were  right,  and  it 
accordingly  affirmed  the  same.  Defendants'  applica- 
tion for  rehearing  consists  in  a  typewritten  brief,  iu 
which  counsel  purport  to  review  the  evidence;  and  a 
careful  examination  of  same  discloses  nothing*  new  or 
additional  to  the  argument  originally  made.  The 
application  chiefly  rests  upon  the  two  following  ques- 
tions :  First.  Can  a  person  who  is  cashier  of  a  bank 
transact  business  in  his  own  name  and  for  himself, 
without  making  the  bank  responsible  ?  Second.  Can 
he  do  this  as  an  individual  through  himself  as  cashier, 
or  through  the  assistant  cashier,  without  making  the 
bank  responsible  for  his  personal  acts  ?  These  two 
questions  may  be  answered  in  the  negative,  for  the 
reasons  assig-ned  in  the  cases  of  Richardson  v.  Watson 
(recently  decided)  26  South.  422,  and  Seixas  v.  Bank, 
38  La.  Ann.  424,  which  is  therein  referred  to.  In  our 
opinion,  it  would  be  a  dangerous  doctrine  to  announce 


B  CAS]  OFFICERS  609 

Valdetero  v.  Citizens'  Bank  of  Jennings 

that  any  transaction  carried  on  by  a  cashier  necessarily 
resulted  in  making-  the  hank  responsible,  whether  the 
officers  and  directors  of  the  bank  were  aware  of  it  or 
not;  and  it  would  be  still  more  dang*erous  to  extend  the 
bank's  responsibility  to  any  act  of  an  assistant  cashier. 
Banks  are  established  for  public  convenience,  and  in 
the  interest  of  the  business  community,  and  do  busi- 
ness in  pursuance  of  well-known  and  well-established 
rules  ;  and  no  officer  or  employee  of  a  bank  has  any 
rig-ht  to  deal  with  its  funds,  or  negfotiate  transactions 
in  their  name,  unless  in  pursuance  of  those  rules,  and 
with  full  knowledg-e  of  all  other  officers  of  the  bank 
who  are  entitled  to  information.  The  cause  of  action 
g-rows  out  of  defendants'  refusal  to  honor  a  check 
drawn  by  the  plaintiff  on  the  defendant  bank  ;  defend- 
ant Hoffman  being-  the  cashier  of  the  defendant  bank. 
It  appears  that  one  Dr.  Burke  was  president  of  the 
bank,  and  had  left  home,  and  gfone  to  Florida,  on 
account  of  his  being"  "a  very  sick  man,  both  in  bodj" 
and  mind."  The  plaintiff  was  his  friend  and  a  friend 
of  his  family,  and  had  been  in  his  employ  for  many 
years,  and  their  business  relations  were  intimate.  He 
was  very  anxious  as  to  the  whereabouts  and  condition 
of  Dr.  Burke.  This  anxiety  resulted  in  search  being' 
made  for  Dr.  Burke.  It  appears  from  the  evidence 
that  Hoffman  induced  the  plaintiff  to  g"o  to  Florida,  and. 
bring-  back  Dr.  Burke,  and  promised  him,  as  an 
inducement,  that  he  would  honor  the  latter's  check  on 
the  defendant  bank  for  the  sum  of  $300  in  favor  of  L. 
N.  Brunswig-  &  Co.  Thereupon  plaintiff  drew  the 
check,  and  left  for  Florida  ;  but,  during-  his  absence, 
the  check  was  dishonored,  and  the  cashier,  Hoffman, 
failed  to  carry  out  his  promise,  and  returned  the  check 
to  Brunswig-  &  Co.,  unpaid,  directing-  them  to  draw  a 
draft  on  plaintiff  for  $300,  and  forward  it  to  him, 
and  that  he  would  remit  the  exchang-e.  The  draft  was 
drawn,  forwarded  to  the  bank,  and  a  check  issued  by 
the  cashier  on  the  State  National  Bank  of  New  Orleans, 
and  same  was  mailed  to  Brunswig-  &  Co.     Immediately 

B  CAS — 39 


610  OFFICERS  [vol  I 

Valdetero  z>.  Citizens'  Bank  of  Jennings 

afterwards  same  was  countermanded,  and  payment 
stopped  b}'  Hoffman.  The  latter  assig-ned  to  Bruns- 
\vio-  &  Co.  his  reason  for  so  doing-  to  be  that  plaintiff 
had  made  false  representations  to  him,  and  had  drawn 
on  the  defendant  bank  without  authority;  he  having-  no 
funds  at  his  credit.  The  defense  of  Hoffman  is  that, 
after  consenting-  to  g-ive  plaintiff  a  check  to  aid  in  bear- 
ing- his  expense  to  Florida,  "he  learned  that  two 
hundred  dollars  of  the  amount  was  to  be  used  to  pay 
an  indebtedness  of  Dr.  Burke  to  L.  N.  Brunswig-  & 
Co.";  Dr.  Burke  being-  alleg-ed  to  have  overdrawn  his 
account  with  the  bank  to  the  extent  of  $1,500.  The 
determinative  question  in  the  case  was  whether  "Hoff- 
man promised,  in  the  name  of  the  bank,  to  pay  the 
check,  as  alleg-ed  by  plaintiff."  We  are  satisfied, 
from  an  examination  of  the  record,  as  well  as  from  the 
statement  of  the  case,  that  both  of  the  defendants  had 
an  interest  in  the  return  of  Dr.  Burke,  the  president 
of  the  bank.  It  seems  that  Dr.  Burke  fell  sick  in 
Florida,  and  died  a  few  days  afterwards.  Our  opinion 
holds,  and  our  examination  of  the  record  confirms  the 
statement,  that  "the  ag-reement  between  plaintiff  and 
this  defendant  was  complete,  and  the  former  was  on 
his  way  to  Florida  to  perform  his  part  of  the  agree- 
ment. It  was  certainly  too  late  to  recall  the  promise"; 
the  plaintiff  having-  complied  fully  with  his  oblig-ation. 
Under  these  circumstances,  we  think  both  defendants 
are  liable,  and  our  opinion  so  holds.  In  issuing-  the 
check  of  the  bank,  and  countermanding-  the  payment  of 
same,  Hoffman  acted  for  the  bank,  and  in  the  interest 
of  the  bank,  as  vvell  as  his  own.  This  entire  matter 
appertains  to  a  transaction  of  the  bank.  The  interest 
of  the  bank  was  to  be  subserved  by  the  restitution  of 
Dr.  Burke,  who  had  larg-ely  overdrawn  his  personal 
account  therewith  ;  and  the  cashier  was  evidently 
seeking-  to  further  the  interest  of  the  bank  by  making- 
the  arrang-ement  he  proposed  to  the  plaintiff,  and  by 
issuing-  the  check  in  conformity  therewith.  On  this 
state  of  facts,  plaintiff  acted  in  undertaking-  the  search 
for    their  restitution    of  Dr.    Burke,  and    evidently  at 


B  CAS]  OFFICERS  611 

Note 

some  expense  ;  and  this  provision  was  evidently 
intended  to  place  him  in  funds  to  discharg-e  the  same. 
Our  opinion  says  :  "The  loan  to  plaintiff,  or  rather  the 
promised  loan  by  cashing'  his  check  as  before  stated,  was 
not  out  of  the  usual  course  of  business."  It  further 
says  :  "It  was  not  extraordinary,  under  the  circum- 
stances, if,  as  we  think,  the  bank  gave  its  approval  to 
the  cashier's  act  as  alleged.  No  attempt,  as  we  take 
it,  was  made  to  recall  this  approval."  We  have 
examined  the  opinion  and  evidence,  and  find  no  reason 
to  changfe  our  view.  The  case  being-  one  in  damag-es, 
and  tried  by  a  jury  of  the  viciuag-e,  and  an  application 
for  rehearing-  made  and  overruled,  and  said  judgment 
having  been  affirmed  by  this  court  by  the  unanimous 
voice  of  its  judges,  it  would  require  a  much  more 
extreme  case  than  that  which  is  stated  on  the  applica- 
tion for  rehearing  to  induce  this  court  to  render  a 
different  decree  ;  the  amount  allowed  being-  compara- 
tively insignificant  in  comparison  with  the  am.(junt 
claimed  and  the  prominence  of  the  parties  to  this 
litigation.     For   this   reason    the  rehearing-  is  refused. 


NOTE. 

Powers  of  Cashiers  of  Incorporated  Banks. — Generally. — The 
cashier,  as  chief  executive  officer  of  a  bank,  has  the  manag'ement  of 
its  affairs  in  all  thing-s  not  peculiarly  committed  to  the  directors. 
He  is  the  agent  of  the  corporation  and  not  of  the  directors.  Bank 
of  Kentucky  v.  Schuylkill  Bank,  1  Pars.  Sel.  Cas.  180  ;  Bissell  i'. 
First  Nat.  Bank,  69  Pa.  St.  415;  Merchants'  Bank  v.  State  Bank,  10 
Wall.  650  ;  Baldwin  v.  Bank  of  Newbury,  1  Wall.  234.  See,  also, 
Martin  v.  Webb,  110  U.  S.  7,  3  Am.  &  Eng-.  Corp.  Cas.  331  ;  Briden- 
decker  v.  Eowell,  32  Barb.  9  ;  Badger  v.  Bank  of  Cumberland,  26 
Me.  428  ;  Asher  v.  Sutton,  31  Kan.  286,  3  Am.  &  Eng-.  Corp.  Cas.  342. 
He  has  inherent  power,  as  such  executive  officer,  to  do  all  things 
which  come  within  the  general  scope  of  the  legititnate  business  of 
banking.  Lloyd  v.  West  Branch  Bank,  18  Pa.  St.  172  ;  West  St. 
Eouis  Sav.  Bank  v.  Shawnee  County  Bank,  95  U.  S.  557  ;  Matthews 
V.  Massachusetts  Nat.  Bank,  1  Holmes  (C,  C),  396;  United  States  v. 
City  Bank,  21  How.  356  ;  Union  v.  Mechanics'  Bank,  1  Pet.  (U.  S.) 
46;  Neififer  z/.  Bank  of  Knoxville,  1  Head  (Tenn.),  162;  Wakefield 
Bank  v.  Warsdell,  55  Barb.  602  ;  Fleckner  v.  Bank  of  United  States, 
8  Wheat.  (U.  S.)  388.  And,  being  held  out  to  the  world  as  the 
general  agent  of  the   bank,  his   acts   will  bind  the  bank    in  favor  of 


612  OFFICERS  [vol  r 

Note 

third  persons  who  have  no  knowledge  of  any  limitation  placed  upon 
his  powers  by  the  board  of  directors.  Merchants'  Bank  v.  State 
Bank,  10  Wall.  604 ;  Morse  v.  Massachusetts  Nat.  Bank,  1  Holmes 
(C.  C),  209;  Union  v.  Mechanics'  Bank,  1  Pet.  (U.  S.)  46;  Casey  v. 
Bank,  100  U.  S.  446  ;  Burnham  v.  Webster,  19  Me.  232  ;  Reynolds  v. 
Collins,  78  Ala.  94;  Bank  of  Kentucky  v.  Schuylkill  Bank,  1  Par:*. 
Sel.  Cas.  180;  Matthews  v.  Massachusetts  Nat.  Bank,  1  Holmes  (C. 
C),  396  ;  Lloyd  v.  West  Branch  Bank,  15  Pa.  St.  172. 

Althoug^h  special  authority  from  the  directors  is  essential  where 
the  cashier  acts  without  the  ordinary  course  of  his  duties,  such 
authority  may  be  implied  where  the  directors  suffer  the  cashier  to 
pursue  a  particular  line  of  condtict  for  a  considerable  period  of  time, 
or  acquiesce  in  the  performance  of  similar  acts,  or  avail  themselves 
of  the  benefit  of  the  transactions.  Caldwell  :'.  Nat.  Mohawk  Valley 
Bank,  64  Barb.  333  ;  Martin  v.  Webb,  110  U.  S.  7,  3  Am.  &  Eng-. 
Corp.  Cas.  331  ;  Ballston  Spa  Bank  v.  Marine  Bank,  16  Wis.  125  ; 
Badg-er  v.  Bank  of  Cumberland,  26  Me.  428  ;  Medomak  Bank  v.  Cor- 
lis,  24  Me.  36  ;  Robinson  v.  Bealle,  20  Ga.  275  ;  Payne  v.  Commer- 
cial Bank,  14  Miss.  24  ;  Merchants'  Bank  v.  State  Bank,  10  Wall. 
604;  Bank  of  Penn.  v.  Reed,  1  Watts  &  S.  (Pa.)  101;  First  Nat. 
Bank  v.  Graham,  79  Pa.  St.  106;  Ecker  v.  New  Windsor  Bank,  59 
Md.  291  ;  City  Bank  of  New  Haven  v.  Perkins,  29  N.  Y.  554;  Stam- 
ford Bank  i>.  Benedict,  15  Conn.  437.  And  there  are  cases  which 
hold  that  acts  of  the  cashier  performed  in  accordance  with  authority 
conferred  by  the  board  of  directors  will  bind  the  bank,  though  the 
acts  be  ultra  vires  of  the  corporation  [Zugner  v.  Best,  12  Jones  &  S. 
(N.  Y.)  393;  Bank  of  Kentucky  v.  Schuylkill  Bank,  1  Pass.  Tel. 
Cas.  180  ;  Hagerstown  Bank  v.  London  &  C.  Society,  3  Grant  Cas. 
(Pa.)  135],  or  beyond  the  ordinary  scope  of  the  cashier's  duties 
[Bank  v.  Graham,  79  Pa.  St.  106,  100  U.  S.  699  :  Chemical  Nat.  Bank 
V.  Kohner,  85  N.  Y.  189:  Bank  of  Vergennes  v.  Warren.  7  Hill  (N. 
Y.K91;  Bank  of  Pennsylvania  r.  Reed,  1  Watts  &  S.  (Pa.)  101; 
Donnell  v.  Lewis  County  Sav.  Bank,  80  Mo.  165].  But  this  princi- 
ple is  opposed  to  the  ruling  in  Merchants'  Bank  z'.  State  Bank,  10 
Wall.  604. 

Generally  speaking,  the  bank  will  not  be  responsible  for  acts  of 
the  cashier  which  are  solely  within  the  prerogatives  of  the  directors, 
though  he  act  in  good  faith  and  under  color  of  authority-.  Morse  ?'. 
Massachusetts  Nat.  Bank,  1  Holmes  (C.  C.I,  209  ;  Watson  v.  Bennett, 
12  Barb.  196;  United  States  v.  City  Bank.  21  How.  360;  Shryock  v. 
Basehove,  82  Pa.  St.  159  ;  Uaviess  County  Sav.  Ass.  v.  Sailor,  63 
Mo.  24  ;  Bank  of  East  Tenn.  v.  Hooke,  1  Col'dw.  (Tenn.)  156  ;  Rhodes 
z.'.  Webb,  24  Min.  292  ;  Bank  of  Com's  Z'.  Bank  of  Buffalo.  6  Paige 
(N.  Y.),  497  ;  Percy  v.  Millandon,  3  La.  568.  But  where  the  cashier 
is  notoriously  left  to  do  all  the  outside  business  of  the  bank,  another 
bank  which  advances  money  on  negotiable  securities  pledged  by 
such  cashier  in  the  name  of  his  bank  may  presume  the  consent  of 
the  directors  to  the  act  of  the  cashier.  Mercantile  Bank  v.  McCarthy, 
7  Mo.  App.  318. 

A  cashier  has  neither  inherent  nor  implied  power  to  convey  or 
encumber  the  corporate  property,  other  than  the  negotiable  securi- 
ties mentioned  below,  such  power  being  a  prerogative  of  the  board 
of  directors.  United  States  v.  City  Bank  of  Columbus,  21  How.  356  ; 
Legget  V.  New  Jersey  Mfg.  &  Banking  Co.,  1  N.  J.  Eq.  541  ;  Ten- 
nessee V.    Davis,  50  How.    Pr.  (N.  Y.)    447  ;  Holt  v.  Bacon,  25  Miss. 


B  CAS]  OFFICERS  '  613 

Note 

567.  But  he  may,  in  the  ordinar3'  course  of  business,  discharge  a 
mortgag-e  and  note  of  the  bank.     Ryan  v.  Dunlap,  17  111.  40. 

In  the  absence  of  consent  or  ratification,  a  bank  will  not  be  liable 
for  the  act  of  its  cashier  in  purchasings  boots  and  shoes  in  the  name 
of  the  bank  for  the  benefit  of  a  third  person.  North  Star  Boot  & 
Shoe  Co.  V.  Stebbins  (S.  D.),  48  N.  W.  Rep.  833. 

A  cashier  maj'  indorse  to  himself  and  sue  on  a  note  payable  to  the 
bank.      Young-  v.  Hudson,  90  Mo.  102. 

The  cashier  of  a  national  bank,  holding  the  paper  of  a  firm  of 
which  the  cashier  is  a  member,  has  no  power  to  bind  the  bank  by  an 
agreement  that  there  shall  be  no  liability  upon  an  accommodation 
note  procured  by  him  to  be  substituted,  for  a  special  purpose,  for 
the  indebtedness  of  the  firm.     Allen  v.  Bank,  127  Pa.  St.  51. 

A  cashier  cannot  bind  his  bank  by  an  assurance  to  the  indorsee 
of  a  note  payable  to  the  bank  that  he  will  not  be  held  liable.  Thomp- 
son V.  McKee,  5  Dak.  172. 

In  Walden  Nat.  Bank  v.  Birch,  130  N.  Y.  221,  it  appeared  that  the 
cashier  of  a  national  bank,  to  obtain  security'  for  a  note  discounted 
by  the  bank,  procured  from  the  maker  an  assignment  to  himself  of 
some  stock  in  the  bank,  and,  in  order  to  evade  the  national  banking 
law,  placed  stock  in  a  separate  envelope,  and  indorsed  the  note  to 
himself.  It  was  held  that  he  held  the  stock  for  the  bank  or  cashier, 
and  that  his  sureties  were  liable  for  his  misappropriation  of  the 
stock. 

The  acts  of  a  cashier,  performed  in  behalf  of  the  bank  which  are 
not  criminal  or  ag^ainst  public  policy,  when  executed  in  whole  or  in 
part,  are  binding"  on  the  hank,  and  make  it  liable  where  it  enjo5's 
the  benefit  of  the  acts.     Owens  v.  Stapp,  32  111.  App.  653. 

The  relations  of  a  bank  with  its  cashier  are  analogous  to  those  of 
a  principal  with  his  agent,  and  the  principles  governing  the  right 
of  disaffirming  unauthorized  acts  of  an  agent  are  applicable.  Sec- 
ond Nat.  Bank  v.    Burt,  93  N.  Y.    233,  3  Am.  &    Eng.  Corp.  Cas.  233. 

If  a  cashier  receives'  securities  on  a  loan  from  his  bank  to  a  trus- 
tee, with  knowledge  that  the  securities  belong  to  a  trust,  the  bank 
is  affected  with  the  knowledge  of  its  cashier,  and  is  put  upon  in- 
quir}^  as  to  whether  the  trustee  has  authoritj^  to  pledge  the  securi- 
ties.    Loring  V.  Brodie,  134  Mass.  453.  3  A.in.  &  Eng.  Corp.  Cas.  277. 

Collection  of  Debts — Compro)nisiit<r  Claims. — The  cashier  of  a 
bank  has  power  to  collect  debts  due  the  bank,  and  may  exercise  his 
discretion  in  taking-  measures  for  the  securit3'  and  collection  of  the 
debt.  Bridendecker  v.  Lowell,  32  Barb.  9  ;  Eastman  v.  Coos  Bank, 
1  N.  H.  23  ;  Carver  v.  Paul,  41  N.  H.  24  ;  Young-  v.  Hudson,  99  Mo. 
102;  United  States  z^  City  Bank,  21  How.  356.  But  he  has  no  in- 
herent authoritj'  to  receive  anything  but  money.  Morse  on  Banks 
and  Banking-  (3d.  Ed.),  J;  159.  And  he  has  no  inherent  power  to 
compromise  a  claim,  though  such  power  may  sometimes  be  presumed. 
Morse  on  Banks  and  Banking  (3d.  Ed.)  ^  159  ;  Chemical  Nat.  Bank 
7'.  Kohner,  85  N.  Y.  189.  He  cannot  change  the  nature  of  the  debt, 
nor  make  the  bank  an  agent  of  its  debtor.  Sandj'  River  Bank  i.'. 
Merchants',  etc.,  Bank,  1  Biss.  (C.  C.)  146;  Bank  of  Pennsylvania 
7'.  Reed,  1  Watts  &  S.  (Pa.),l()l;  Payne  v.  Commercial  Bank,  14 
Miss.  24  ;  Ecker  v.  New  Windsor  Bank,  59  Md.  291.  Nor  can  he,  by 
virtue  of  his  office,  take  private  notes  and  drafts  in  settlement  of  an 
account  and  give  a  receipt  in  full.  Sandy  River  Bank  7'.  Merchants", 
etc.,  Bank,  1  Biss.  (C.    C.),  146.     Nor   release   the    maker  of  a  note, 


614  OFFICERS  [vol  I 

Note 

payable  to  and  held  by  the  bank.  Dedhani  Institution  v.  Slack,  6 
Cush.  (Mass.)  408;  Hod^e  ?'.  Nat.  Bank,  22  Gratt.  (Va.)  51.  And. 
in  g'eneral,  he  has  no  authority  to  make  any  arrang'ement  whereby 
the  security  of  the  bank  on  paper  due  it  will  be  released  or  impaired. 
Daviess  County  Sav.  Ass'n  v.  Sailor,  63  Mo.  24  ;  Gallery  v.  Albion 
Nat.  Bank,  41  Mich.  169;  Merchants'  Bank  v.  Rudolf,  5  Neb.  527. 
But  see  Bank  v.  Kling-ensmith,  7  Watts  (Pa.),  523. 

Transfer  of  Securities — Indorsement. — Unless  authority  be  con- 
ferred by  the  bank,  a  cashier  has  no  power  to  indorse  non-neg"otiable 
paper.  Holt  v.  Bacon,  25  Miss.  567  ;  Barrick  v.  Austin,  21  Barb.  241  : 
Zillet  i>.  Philips,  13  N.  Y.  114.  But  he  has  power  to  transfer  and 
indorse  the  neg'otiable  paper  belonging  to  the  bank  for  the  purpose 
of  collection  [Potter  <'.  Merchants'^'  Bank,  28  N.  Y.  641  ;  Elliott -■. 
Abbott,  12  N.  H.  549  ;  Carver  v.  Paul,  4  N.  H.  24],  and  to  discharge 
the  obligations  of  the  bank  [Care}-  z\  Giles,  10  Ga.  9  ;  Eafayette 
Bank  v.  State  Bank  of  Illinois,  4  McLean,  208;  Crocket  v.  Young. 
1  S.  &  N.  (Miss.)  241  ;  Everett  v.  United  States,  6  Port.  (Ala.)  166  ; 
Sturgis  V.  Bank  of  Circleville,  11  Ohio  St.  153  ;  Kimball  v.  Cleve- 
land, 4  Mich.  606].  And  the  signature  of  the  cashier  to  a  transfer 
of  certificates  of  stock  of  another  corporation  held  bj'  the  bank  as 
collateral  will  be  considered  as  the  signature  of  the  bank,  though 
such  instruinents  are  not  negotiable  paper.  Matthews  i'.  Massa- 
chusetts Nat.  Bank,  1  Holmes  (C.  C.),"396;  and  see  Cecil  Nat.  Bank 
<'.  Watsontown  Bank,  105  U.  S.  217.  But  an  indorsement  whicli 
will  bind  the  bank  must  be  within  the  scope  of  his  duties  as  cashier. 
Blair  v.  First  Nat.  Bank,  2  Flip.  (C.  C.)  Ill  ;  Schneitman  v.  Noble. 
75  Iowa,  120. 

In  general,  it  may  be  said  that  no  attempted  transfer  by  the 
cashier  of  the  bank's  securities  will  be  valid  when  it  appears  that 
the  transfer  was  made  in  prejudice  of  the  rights  and  interests  of  the 
bank.  Smith  v.  Lawson,  18  W.  Va.  212,  3  Am.  &  Eng.  Corp.  Cas. 
294  ;  Barnes  v.  Bank,  19  N.  Y.  152.  But  in  Bank  of  New  Haven  v. 
Perkins,  29  N.  Y.  554,  it  is  held  that  the  authority  of  the  cashier  to 
make  such  a  transfer  ex  officio,  for  a  legitimate  purpose,  is  un- 
doubted, the  court  citing  Ang.  &  Ames  on  Corp.  296  ;  2  Parsons  on 
Notes  and  Bills,  7  ;  Fleckner  v.  Bank  of  United  States,  8  Wheat. 
(U.  S.)  338.  And  where  no  irregularity  appears,  a  cashier,  accord- 
ing to  the  great  preponderance  of  the  authorities,  may  transfer  and 
indorse  negotiable  securities  when  given  special  authority  from  the 
bank.  Wild  z'.  Passamaquoddy  Bank,  3  Mason  (C.  C),  505;  State 
Bank  of  Ohio  v.  Fox,  3  Blatchford  (C.  C.)  431  ;  Genessee  Bank  r'. 
Patchin  Bank,  19  N.  Y.  312;  Cooper  v.  Curtis.  30  Me.  488  :  Robb  v. 
Ross  County  Bank,  41  Barb.  586 ;  State  Bank?'.  Wheeler,  21  Ind. 
90  ;  Harper  v.  -Calhoun,  8  Miss.  203  ;  Blair  v.  Mansfield  Bank,  2  Flip. 
(C.  C.)  Ill;  Bi.ssell  v.  First  National  Bank,  69  Pa.  St.  415;  Badger 
7'.  Bank  of  Cumberland,  20  Me.  428;  Smith  v.  Law.son,  18  W.  Va. 
213,  3  Am.  &  Eng.  Corp.  Cas.  294  ;  Bank  of  United  States  v.  Davis. 
4  Cranch  (U.  S.),  533  ;  Maxwell  v.  Planet  Bank,  10  Humph.  (Tenn.) 
507;  Farrar  v.  Gilman,  19  Me.  440;  St.  Louis  Perpetual  Ins.  Co.  v. 
Cohn,  9  Mo.  421 ;  Bank  of  New  York  v.  Bank  of  Ohio,  29  N.  Y.  619. 
But  he  has  no  power,  without  special  authority,  to  bind  the  bank  by 
an  official  indorsement  of  his  individual  note.  West  St.  Louis  Sav. 
Bank  v.  Shawnee  Count)'  Bank,  95  U.  S.  557  ;  Blair  v.  Mansfield 
Bank,  2  Flip.  (C.  C.)  111.  Where  only  the  cashier's  actual  name 
appears,  patrol  evidence  may  be  admitted  to  show  the  real  character 


B  CAS]  OFFICERS  615 

O'Brien  v.  East  River  Bridg-e  Co 

of  the  indorsement.  Mechanics'  Bank  v.  Columbia  Bank,  5  Wheat. 
(U.  S.)  334;  Utica  v.  Magher,  18  Johns.  (N.  Y.)  342.  But  such  an 
indorsement,  althoug-h  made  upon  a  note  not  belonging-  to  the  bank, 
and  merely  for  the  accommodation  of  the  payee  or  prior  indorser, 
has  been  held  binding  upon  the  bank  as  against  a  purchaser  in 
good  faith,  for  value,  before  maturity.  Houghton  v.  First  National 
Bank  of  Eckhorn,  26  Wis.  663  ;  Bank  of  New  York  v.  Bank  of  Ohio, 
29  N.  Y.  619  ;  Banking  Ass'n  v.  White  Lead  Co.,  35  N.  Y.  505  ;  and 
see  North  River  Bank  z'.  Aymer,  3  Hill  (N.  Y.),262;  Farmers' & 
Mechanics'  Bank  v.  Butchers'  &  Drovers'  Bank,  14  N.  Y.  643,  16  N. 
Y.  125  ;  Genessee  Bank  v.  Patchin  Bank,  19  N.  Y.  312. 

A  cashier  cannot  bj-  virtue  of  his  office  release  a  surety  upon  a 
note  held  by  the  bank,  even  though  the  bank  holds  other  security  to 
which  it  might  resort,  special  authority  being  necessary  to  justify 
such  release.  Merchants'  Bank  i\  Rudolph,  5  Neb.  527  ;  Cochecho 
Bank  v.  Haskell,  51  N.  H.  116  ;  Daviess  Countv  Sav.  Ass'n  v.  Sailor, 
63  Mo.  24  ;  Ecker  v.  First  National  Bank,  59  Md.  291  ;  Rvan  v. 
Dunlap,  17  111.  40. 


O'Brien  ct  al. 


East  River  Bridge  Co. 

{Supreme  Court  of  Ne-cu    York,    Appellate   Division,   First   Depart- 
ment, Dec.  JO,  iSgS.) 

Insolvent     Bank — Preferences  —  Officer     Using     Knowledge. — A 

director  of  the  M.  S.  Bank,  who  was  also  the  president  of  a  bridge 
company,  when  he  had  acquired  as  such  director  the  knowledge 
that  such  bank  was  in  imminent  danger  of  insolvenc}',  and  would 
be  closed  the  following  day,  and  that  the  St.  N.  Bank,  as  the  agent 
of  the  M.  S.  Bank  at  the  latter's  clearing  house,  had  in  its  posses- 
sion a  large  amount  of  the  latter's  securities,  and  was  responsible 
for  all  checks  of  the  M.  S.  Bank  that  would  be  presented  at  the 
clearing  house  on  the  next  morning,  signed  as  president  of  the 
bridge  company  a  check  upon  the  M.  S.  Bank  for  the  amount  owing 
by  the  latter  to  the  bridge  companj-,  and  had  it  passed  through  the 
clearing  house  on  the  next  day,  thereby  effecting  a  transfer  of  such 
amount  from  the  M.  S.  Bank  to  the  bridge  company.  Held,  that 
such  transfer  was  an  invalid  preference  under  section  48  of  the 
stock  corporation  law  of  New  York. 

Appeal  b}"  complainants  from    judg-ment  on  report 
of  referee.     Reversed. 

Arg-ued  before  Van  Brunt, P.  J.,  and  McLaughlin. 
Patterson,  O'Brien,  and  Ingraham,  JJ. 

*See  notes  at  end  of  case. 


616  OFFICERS  [vol  I 

O'Brien  v.  East  River  Bridge  Co 

SaniHcl  Untcrmycr,  for  appellants. 
jEugene  Treadzuell,  for  respondent, 

Patterson,  J.  This  action  was  broug-ht  by  the 
receivers  of  the  Madison  Square  Bank  to  recover  from 
the  defendant  a  sum  of  mone}'  to  which  they  claimed 
they  were  entitled  under  the  provisions  of  section  48 
of  the  stock  corporation  law,  which    reads  as  follows  : 

"No  corporation  which  shall  have  refused  to  pay  any 
of  its  notes  or  other  oblig^ations  when  due  in  lawful 
money  of  the  United  States,  nor  any  of  its  officers 
or  directors,  shall  transfer  any  of  its  property  to 
anv  of  its  officers,  directors  or  stockholders,  di- 
rectly or  indirectly,  for  the  payment  of  any  debt, 
or  upon  any  other  consideration  than  the  full  value 
of  the  property  paid  in  cash.  No  conveyance,  as- 
sio-nment  or  transfer  of  any  property  of  any  such 
corporation,  by  it  or  by  any  officer,  director  or  stock- 
holder thereof,  nor  any  payment  made,  judg-ment 
suffered,  lien  created  or  security  given  by  it  or  by  any 
officer,  director  or  stockholder,  when  the  corporation  is 
insolvent  or  its  insolvency  is  imminent,  with  the  intent 
of  g'iving-  a  preference  to  any  particular  creditor  over 
other  creditors  of  the  corporation,  shall  be  valid. 
Every  person  receiving-  by  means  of  any  such  prohibited 
act  or  deed  any  property  of  the  corporation  shall  be 
bound  to  account  therefor  to  its  creditors  or  stockholders 
or  other  trustees.  No  stockholder  of  any  such  corpo- 
ration shall  make  any  transfer  of  his  stock  therein  to 
any  person  in  contemplation  of  its  insolvency.  Every 
transfer  or  assig-nment  or  other  act  done  in  violation  of 
the  foreg-oing-  provisions  of  this  section  shall  be  void." 

The  material  facts  of  the  case  are  without  dispute. 
On  the  8th  of  August,  1893,  the  defendant  was  a 
depositor  in  the  Madison  Square  Bank,  and  it  had 
standing-  to  its  credit  on  the  books  of  the  bank  on  that 
day  the  sum  of  S50.000.  As  to  that  amount,  the  ordi- 
nary relation  of  debtor  and  creditor,  and  no  other, 
existed  between  the  bank  and  the  depositor.  On  the 
nig-ht  of  the  8th  of  Aug-ust,  1893,  it  became  known  to 
Frederick   Uhlman,  a  director  of  the  Madison    Square 


II 


E  CAS]  OFFICERS  617 

O'Brien  v.  Fast  River  Bridg-e  Co 

Bank  and  also  the  president  of  the  East  River  Bridgfe 
Company,  that  the  bank  was  insolvent,  or  in  imminent 
dano-er  of  insolvency,  and  that  it  would  be  closed  the 
followino-  day.  Frederick  Uhlman  also  knew  that  the 
St.  Nicholas  Bank  was  the  agent  at  the  clearinof  house 
of  the  Madison  Square  Bank,  and  that  on  the  8th  of 
Aug-ust,  1893,  the  St.  Nicholas  Bank  had  in  its  posses- 
sion a  larg-e  amount  of  securities  belong-ing-  to  the 
Madison  Square  Bank,  and  that  it  held  such  securities 
as  collateral  for  any  and  all  oblig^ations  as  accent  of  the 
Madison  Square  Bank.  He  also  knew  that  the  St 
Nicholas  Bank  had  notified  the  clearinof  house  that  it 
would  cease  to  act  for  the  Madison  Square  Bank,  and 
that  the  St.  Nicholas  Bank,  by  the  rules  and  reg^ulations 
of  the  clearing-  house,  was  responsible  for  all  checks  of 
the  Madison  Square  Bank  that  would  be  presented  at 
the  clearing-  house  in  the  exchang-es  on  the  morning  of 
the  9th  of  Aug-ust.  All  this  knowledg-e  was  acquired 
by  Frederick  Uhlman  as  a  director  of  the  Madison 
Square  Bank.  On  the  nig-ht  of  August  8th,  Simon 
Uhlman,  who  was  larg-ely  interested  in  the  stock  of  the 
East  River  Bridg-e  Company  learned  of  the  imminenc}'^ 
of  insolvency  of  the  Madison  Square  Bank,  and  that  it 
would  probably  be  closed  the  following-  morning-. 
Thereupon  he  caused  a  check  to  be  filled  up,  drawn 
upon  the  Madison  Square  Bank,  for  S50,000,  and  took 
it  to  the  treasurer  of  the  defendant  at  Brooklyn,  where 
it  was  sig-ned  by  such  treasurer  at  about  11  o'clock  at 
night.  That  being-  done,  Simon  Uhlman  returned  to 
New  York  Cit}^  with  the  check,  and  handed  it  to 
Frederick  Uhlman,  who  also  sig-ned  it  as  president  of 
the  Kast  River  Bridge  Company,  and  retained  it  in  his 
possession  overnight.  Early  on  the  morning-  of  the 
9th  of  August,  Frederick  Uhlman  took  the  check  to 
the  Hanover  National  Bank,  and  instructed  the 
authorities  of  that  bank  to  have  it  presented  at 
the  clearing-  house  that  morning,  so  that  it  mig-ht 
be  paid  b}^  the  St.  Nicholas  Bank  in  the  exchanges 
of  that  moi'ning-,  and  thus  be  credited  to  the  East 
River    Bridg-e    Company,    and    a  withdrawal    effected 


618  OFFICERS  [vol  I 

O'Brien  v.  East  River  Bridg-e  Co 

of  SO  much  from  the  funds  and  moneys  or  secu- 
rities of  the  Madison  Square  Bank  under  the  control  of 
the  St.  Nicholas  Bank.  The  check  was  presented  at. 
and  passed  throug-h,  the  clearing*  house.  The  E^ast 
River  Bridg-e  Company  received  a  credit  with  the 
Hanover  Bank,  and  thus  the  transfer  of  $50,000  was 
completely  made  from  the  Madison  Square  Bank  to  the 
defendant.  The  Madison  Square  Bank  was  closed  on 
the  morning-  of  the  9th  of  Aug^ust,  or,  more  properly 
speaking-,  w^as  never  opened  for  business  after  the  8th. 
and  went  into  insolvency.  Under  those  circumstances, 
the  receivers  claim  that  there  was  transferred  by  a 
director  of  the  Madison  Square  Bank  funds  and 
moneys  of  that  bank  to  a  creditor,  with  the  intent 
on  the  part  of  the  director  to  g-ive  such  creditor 
a  preference,  contrary  to  the  provisions  of  the 
statute,  such  transfer  being-  made  when  the  bank 
was  insolvent  or  its  insolvency  was  imminent,  and 
that  the  transfer  was  void,  and  the  defendant 
liable  to  account  for  the  money.  The  issues  in  the 
action  were  referred  to  a  referee  to  hear,  try,  and 
determine.  He  decided  that  the  complaint  should  be 
dismissed  upon  the  merits.  Upon  such  decision  judg-- 
ment  was  rendered  in  favor  of  the  defendant,  and  from 
that  judg-ment  the  plaintiffs  appeal. 

If  the  construction  gfiven  by  the  learned  referee  to 
section  48  of  the  stock  corporation  law  is  the  correct 
one,  no  other  course  could  have  been  justified  under 
the  proofs  than  was  taken  by  him  in  directing-  judg- 
ment for  the  defendant  ;  for,  as  he  very  properly 
states,  if  the  transaction,  the  subject  of  inquiry'  in  this 
case,  amounted  to  an  illeg-al  preference,  it  must  be 
solely  because  of  the  part  taken  by  Frederick  Uhlman 
in  that  transaction.  But  we  are  not  able  to  adopt  the 
referee's  interpretation  of  the  statute.  While  it  is  one 
that  may  be  said  to  be  in  derog-ation  of  the  common 
law, — for  at  the  common  law  preferences  were  not 
illegal, — yet  it  must  be  so  construed  that  its  purpose 
shall  be  attained,  and  not  subverted  or  thwarted. 
Statutes,    like    contracts,    are    to    be    construed  iit  res 


B  CAS]  OFFICERS  61'> 

O'Brien  v.  East  River  Bridge  Co 

mag-is  raleat  qiiam  percat,  for  that  interpretation 
"furnishes  matter  for  every  clause  [and  requirement] 
of  the  statute  to  work  and  operate  upon."  The 
learned  referee  has  considered  that  the  interdiction  of 
the  statute  applies  only  to  the  corporation,  or  to  the 
officers  or  directors  acting-  officially  or  as  officers  or 
directors.  We  do  not  think  that  is  the  proper  con- 
struction, but,  on  the  contrary,  that  the  prohibition  of 
the  statute  applies  to  individuals  who  stand  in  the 
various  relationships  mentioned  to  the  corporation,  and 
that  no  act  of  theirs  or  either  of  them  shall  be  valid 
when  it  effects,  directly  or  indirectly,  a  transfer  of 
corporate  property  ag^ainst  the  terms  of  the  statute. 

The  preposition  "by,"  as  used  in  the  forty-eigfhth 
section  of  the  statute  in  this  connection,  is  equivalent 
to  the  phrase,  "throug-h  the  means,  act,  or  instrumen- 
tality of"  ;  and  that  section  may  well  be  paraphrased 
so  as  to  read  : 

"No  conveyance,  assig'nment  or  transfer  of  any 
property  of  any  such  corporation  by  it,  or  effected 
througfh  the  means,  act  or  instrumentality  of  any  one 
who  is  an  officer,  director  or  stockholder  thereof,  nor 
any  payment  made,  judg^ment  suffered,  lien  created 
or  security  g-iven  by  it,  or  throug-h  the  means,  act  or 
instrumentality  of  any  one  who  is  such  officer,  director 
or  stockholder,  when  the  corporation  is  insolvent  or 
its  insolvency  is  imminent,  with  the  intent  of  gfiving- 
preference  to  any  particular  creditor  over  other  cred- 
itors of  the  corporation,  shall  be  valid." 

We  do  not  think  it  is  an  essential  condition  that  the 
director  shall  be  acting-  officially  as  a  director  in  mak- 
ing- the  transfer.  An  individual  director  cannot  make 
an  official  transfer  of  assets  of  a  corporation  by  any 
inherent  authority  derived  from  the  mere  fact  of  his 
being-  a  director.  The  statute  refers  to  a  person  being- 
a  director  (its  words  mean  "any  one  w^ho  is")  ;  and  to 
hold  otherwise  w^ould  be  merely  saying-  that  the  words 
"officer"  and  "director"  are  utterly  meaning-less  in 
the  connection  in  which  they  are  used.  What  the 
statute  condemns  is  a    conveyance  or  transfer    effected 


<)20  OFFICERS  [vol  I 

O'Brien  v.  East  River  Bridge  Co 

in  a  particular  way  and  with  a  certain  intent  ;  not 
necessarily  a  corporate  intent,  but  an  intent  of  a  person 
being-  an  officer,  director,  or  stockholder  to  g"ive  a 
preference  to  any  particular  creditor  over  other  cred- 
itors. It  contemplates  the  situation  of  officers,  direct- 
ors, or  stockholders  having-,  by  reason  of  their  relation 
to  the  corporation,  opportunities  of  transferring"  or 
assig-ning-  its  property  and  assets  in  some  way  by  which 
a  preference  may  be  obtained  by  a  creditor  ;  and, 
whether  the  acts  are  official  or  unofficial,  it  is  the 
purpose  of  the  statute  to  make  them  invalid.  As  was 
said  in  Throop  v.  Lithog-raphic  Co.,  58  Hun,  149,  11 
N.  Y.  Supp.  532,  referring-  to  one  purpose  of  this 
section  of  the  statute  : 

"It  seems  to  have  been  the  intention  of  the  leg-isla- 
ture  to  prevent  persons  occupying-  confidential  relations 
towards  corporations  from,  either  directly  or  indi- 
rectly, profiting-  by  the  information  which  they  have 
acquired  because  of  their  relation  to  the  corporation, 
and  which  information  they  could  use  to  the  detriment 
of  the  g-eneral  creditors  of  the  corporation.  Therefore 
it  has  been  provided  that,  where  a  corporation  is 
insolvent,  an  officer  of  such  corporation  shall  be  unable 
to  take  any  of  the  property  of  the  corporation  to  pay 
his  particular  debt." 

That  was  said  in  a  case  in  which  a  director  of  a  cor- 
poration endeavored  to  secure  a  preference  to  himself  ; 
but  the  same  reasoning-  applies  so  far  as  the  disabilitj'^ 
of  the  officer  or  director  is  concerned.  He  may  not  use 
the  information  or  knowledg-e  he  acquires  by  reason  of 
his  confidential  relation  for  his  own  benefit.  By  parit}' 
of  reasoning-,  he  may  not  use  the  knowledgfe  or  infor- 
mation he  derives  from  his  confidential  relationship  for 
au}^  purpose  forbidden  b}'  the  statute.  Preferences  to 
or  by  officers,  directors,  or  stockholders  fall  under  the 
same  condemnation.  The  ultimate  purpose  of  the  sec- 
tion is  to  secure  the  assets  of  the  corporation  for 
eciuality  of  distribution  among-  its  creditors  ;  and,  to 
accomplish  that  object,  any  disposition  of  those  assets, 
or  any  part  of  them,   made  with  the  intent  and  under 


J 


B  CAS]  OFFICERS  '  621 

O'Brien  v.  East  River  Bridg-e  Co 

the  circumstances  mentioned  in  the  statute,  by  any  of 
the  individuals  standing-  in  the  relation  to  the  corpora- 
tion of  those  named  in  the  statute,  is  declared  void. 

It  remains  to  consider  whether  the  acts  of  Frederick 
Uhlman  were  of  such  a  character  as  to  bring-  them 
within  the  operation  of  section  48  of  the  stock  corpora- 
tion law.  It  is  uro-ed  in  this  connection  that  the  section 
does  not  apply  to  a  banking  corporation.  But  that 
question  was  settled  in  this  court  by  vi^hat  was  decided 
in  Hirshfeld  v.  Bopp,  27  App.  Div.  180,  SON.  Y.  Supp. 
b76.  Frederick  Uhlman's  dealing-  with  the  check  after 
it  was  drawn  establishes  the  intent.  His  active  ag-ency 
in  g-etting- it  paid  from  the  funds  of  the  bank  in  which 
he  was  a  director,  by  the  unusual  method  of  taking-  it 
on  the  9th  of  Aug-ust  to  the  Hanover  National  Bank 
and  inducing-  them  to  pass  it  throug-h  the  exchang-es, 
connects  him  with  the  transfer  of  the  Madison  Square 
Bank's  funds  to  pay  a  creditor  preferentially,  within 
the  meaning-  of  the  statute.  Whether  it  was  his  scheme 
or  not,  he  executed  it.  He  caused  the  transfer  of  those 
moneys  to  be  made.  It  is  entirely  immaterial  by  what 
method  the  transfer  was  effected,  if  it  were  such  as 
matter  of  fact.  The  act  took  so  much  of  the  Madison 
Square  Bank's  money,  and  passed  it  over  to  a  simple 
creditor  ;  and  that  was  done  by  a  person  who  was  a 
director  of  the  Madison  Square  Bank,  knowing- of  the 
insolvency  of  the  bank  and  with  the  intent  to  g-ive  a 
preference.  That  act  defines  itself.  Here,  then,  was 
the  case  of  a  director  of  the  Madison  Square  Bank  using- 
his  knowledge  (not  only  of  the  actual  or  impending- 
insolvency  of  that  bank,  but  of  the  fact  that  the  St. 
Nicholas  Bank  had  a  larg-e  amount  of  the  securities  of 
the  Madison  Square  Bank  ;  of  the  fact  that  whatever 
checks  drawn  on  the  Madison  Square  Bank  should  go 
throug-h  the  clearing-  house  on  the  morning-  of  the  9th 
of  Aug-ust  would  be  paid  ;  of  the  fact  that  the  St. 
Nicholas  Bank  could  indemnify  itself  for  the  payment 
of  those  checks  ;  and  of  the  fact  that  the  $50,000  check 
thus  drawn  and  presented  out  of  the  due  course  of 
business  would  be  paid)  in  such  manner  as  to  secure  a 


622  '  OFFICERS  [vol  I 

O'Brien  7'.  East  River  Bridge  Co 

preference  to  the  East  River  Bridg-e  Company,  and 
intending-  that  the  assets  of  the  Madison  Square  Bank 
should  be  proportionally  depleted.  This  result  would 
not  have  been  accomplished  but  for  the  acts  of  a  director 
of  the  Madison  Square  Bank.  Frederick  Uhlmau 
obtained  his  knowledg-e  as  a  director  of  the  Madison 
Square  Bank,  and  unless  we  are  altosrether  wronp"  in 
the  interpretation  of  the  statute,  and  in  our  understand- 
ing- of  what  its  purpose  is,  the  Kast  River  Bridg-e 
Company  is  not  entitled  to  hold  the  money  as  ag-ainst 
the  plaintiffs. 

The  judg-ment  must  therefore  be  reversed,  and  a 
new  trial  ordered,  with  costs  to  the  appellants  to  abide 
the  event.  All  concur,  except  Ingraham,  J.,  dissent- 
ing-. 

McLaughlin,  J.  I  concur  in  the  opinion  of  Mr. 
Justice  Patterson.  The  statute  under  considera- 
tion is  a  beneficial  one,  and  its  effect  should  not  be 
destroyed  by  a  narrow,  technical,  or  forced  construc- 
tion. The  object  to  be  accomplished  by  it  is  to  secure 
equality  among-  all  the  creditors  of  a  corporation,  and 
to  prevent  fraudulent  transfers  in  derog-ation  or  in 
fraud  of  their  rig-hts.  To  that  end  the  statute  provides 
that  : 

"No  conveyance,  assig-nment  or  transfer  of  any 
property  of  any  such  corporation,  by  it  or  by  au}'^ 
officer,  director  or  a  stockholder  thereof,  nor  an^"^  pav- 
ment  made,  judg-ment  suffered,  lien  created  or  security 
g-iven  by  it  or  b}^  any  officer,  director  or  stockholder, 
when  the  corporation  is  insolvent  or  its  insolvency  is 
imminent,  with  the  intent  of  g-iving-  a  preference  to  any 
particular  creditor  over  other  creditors  of  the  corpora- 
tion, shall  be  valid." 

The  act  of  Frederick  Uhlman  in  procuring-  the  pay- 
ment of  the  check  in  question  to  the  defendant  was 
prohibited  both  by  the  letter  and  spirit  of  the  statute. 
This  was  the  situation  :  He  was  one  of  the  directors  of 
the  Madison  Square  Bank.  He  was  also  president  of  the 
defendant,  and  owned  or  controlled  one-tenth  of  its 
entire  capital    stock.     On    the   evening-  of  Aug-ust   8, 


B  CAS]  OFFICERS  623 

O'Brien  v.  East  River  Bridge  Co 

1893,  he  went  to  the  bank,  and  there  had  a  consultation 
with  the  officers  and  certain  of  the  directors;  the  result 
of  which  was  that  he  then  became  informed  that  the 
bank  was  insolvent  or  its  insolvency  imminent,  and 
that  there  was  little  or  no  probability  of  its  resumin^r 
business  on  the  following-  morning".  He  left  the  bank, 
and  immediately  took  advantag^e  of  the  knowledg-e 
which  he  had  thus  acquired,  as  such  director,  for  the 
benefit  of  the  defendant,  and  to  the  prejudice  of  the 
other  creditors  of  the  bank,  by  procuring-  the  payment 
of  the  check  in  the  manner  described  in  the  prevailing- 
opinion.  This  he  had  no  rig-ht  to  do.  As  a  director 
of  the  bank,  he  occupied  a  trust  relation  to  its  creditors, 
and  it  was  his  duty,  the  insolvency  of  the  bank  being- 
at  least  imminent,  to  preserve  all  the  assets,  so  far  as 
he  could,  for  the  benefit  of  all  the  creditors.  The 
intent  of  the  leg-islature,  as  clearly  manifest  in  this 
statute,  is  to  prevent  persons  occupying-  a  confidential 
relation,  which  Uhlman  did,  to  the  bank,  from  either 
directly  or  indirectly  profiting-  by  information  acquired 
because  of  that  relation,  to  the  detriment  of  the  g-eneral 
creditors  of  the  corporation.  Throop  v.  Lithog-raphic 
Co.,  58  Hun,  149,  11  N.  Y.  Supp.  532  ;  Id.,  125  N.  Y. 
530,  26  N.  E.  742. 

It  has,  however,  been  sugg-ested,  not  by  the  learned 
referee  or  the  counsel  for  the  respondent,  but  in  the 
dissenting-  opinion,  that  the  provisions  of  the  forty- 
eig-hth  section  of  the  stock  corporation  law  of  1892  have 
made  a  radical  chang-e  in  the  statute  relating-  to  trans- 
fers or  assig-nments  of  property  by  corporations  when 
insolvent  or  when  insolvency  is  imminent.  That  sug-- 
g-estion  is  based  upon  the  use  of  the  word  "such"  in 
the  second  subdivision  of  the  forty-eig-hth  section  of  the 
statute,  and  it  is  soug-ht  to  be  inferred  from  the  use  of 
that  word  that  the  policy  of  the  state  with  reference  to 
insolvent  corporations,  as  it  had  been  declared  by  stat- 
ute from  the  year  1825,  has,  in  effect,  been  annulled. 
It  is  true  that  a  chang-e  has  been  made,  which  authorizes 
a  corporation  to  make  an  assig-nment  for  the  benefit  of 
creditors  without  preferences,  but  until  the  act  of  1892 


624  OFFICERS  [vol  r 

O'Brien  v.  East  River  Bridg-e  Co 

was  passed  no  doubt  existed  as  to  the  policy  of  the 
statute  or  the  construction  of  section  4  of  the  "Act 
relating-  to  certain  corporations"  (1  Rev.  St.  p.  GOS't, 
which  was  a  re-enactment  of  the  sixth  section  of  chap- 
ter 325  of  the  Laws  of  1825.  The  provisions  of  the 
•Revised  Statutes  were  construed  in  Harris  v.  Thomp- 
son, 15  Barb.  62,  and  it  was  there  declared  that  the 
provision  which  enacted  that  any  corporation  which 
shall  have  refused  to  pay  any  of  its  notes  or  other  obli- 
o-ations  should  not  assign  any  of  its  property  to  its 
officers  or  directors  for  the  payment  of  any  debt  related 
to  one  prohibition  only,  and  that  the  provision  which 
enacted  that  it  should  not  be  lawful  to  make  any 
assig-nment  in  contemplation  of  insolvency  of  "such 
company"  to  any  person  or  persons  whatever,  and 
declaring  a  transfer  so  made  to  any  officer,  stockholder, 
or  other  person  to  be  utterlvvoid,  related  to  an  entirely 
different  state  of  circumstances.  In  the  cases  first 
provided  for,  evidence  of  the  refusal  to  pay  notes  or 
current  obligations  was  required  to  establish  a  cause 
of  action  ;  whereas,  in  the  cases  provided  for  in  the 
second  clause,  no  such  evidence  was  required.  See, 
also,  Sibell  v.  Remsen,  33  N.  Y.  95.  In  the  construc- 
tion g-iven  to  that  statute  it  has  always  been  assumed 
by  the  courts  that  this  provision  was  to  prevent  unjust 
discrimination  among  creditors  of  any  insolvent  corpo- 
ration making  preferential  payment  when  it  was  insol- 
vent or  its  insolvencv  imminent.  Varnum  r.  Hart,  119 
N.  Y.  101,  23  N.  B.  183.  It  has  ahvays  been  under- 
stood, so  far  as  I  am  aw^are,  since  the  enactment  of  the 
Revised  Statutes,  that  this  provision  applied  to  any 
insolvent  corporation.  In  Coats  f.  Donnell,  94  N.  Y. 
168,  the  court  of  appeals  so  held,  saying- :  "The  Revised 
Statutes  prohibit  preferences  of  insolvent  corpora- 
tions." I  find  nothing-  in  the  statute  under  considera- 
tion to  indicate  that  the  policy  of  the  law  has  been 
chang-ed  by  the  use  of  the  word  "such,"  or  that  the 
condition  of  insolvency  or  the  imminency  of  insolvency 
which  would  make  a  preferential  transfer  invalid 
relates  only  to  those  corporations   which  have  failed  to 


B  CAS]  OFFICERS  62S 

O'Brien  v.  East  River  Bridg-e  Co 

pay  their  current  oblio-ations  on  demand  or  when  due^ 
Such  construction  would  take  out  of  the  operation  of 
the  forty- eigfhth  section  of  the  statute  ever}'  corpora- 
tion which  did  not  issue  neg-otiable  paper,  but  con- 
tinued to  pay  its  current  oblig-ations,  notwithstanding- 
the  fact  that  it  mig-ht  be  hopelessly  insolvent,  and  thus 
all  its  property  mig-ht  be  exhausted  in  payment  of  a 
creditor  in  which  the  directors  or  some  of  them  were 
personally  interested.  I  cannot  believe  that  the  leg^isla- 
ture  ever  intended  simply  by  the  use  of  an  adjective  to- 
accomplish  such  result. 

It  is  also  said  that  the  act  prohibited  by  the  statute- 
is  the  act  of  the  corporation  itself,  or  of  some  one  acting; 
for  or  on  its  behalf.  To  give  the  statute  this  construc- 
tion is  to  take  out  of  its  words  contained  therein,  and 
thereby  destroy,  one  of  the  purposes  sought  to  be 
accomplished  by  it.  But  this  question  seems  to  have 
been  settled  by  the  court  of  appeals  in  Throop  v.  Lith- 
ographic Co.,  125  N.  Y.  530,  26  N.  E.  742.  There: 
the  plaintiff,  a  trustee  of  a  corporation,  acting,  not  in, 
collusion  with,  but  in  hostility  to,  the  corporation,  andl 
the  other  trustees,  in  an  action  to  recover  money  loaned,., 
procured  an  attachment,  which  was  thereafter  \-acated,. 
and  the  court  of  appeals,  in  affirming  the  order  vacat- 
ing the  attachment,  said  : 

"The  plaintiff,  in  commencing-  this  action  and  pro- 
curing his  attachment,  was  not  acting  in  collusion  with 
the  trustees,  but  distinctly  in  hostility  to  the  board  of 
directors  and  the  other  officers  of  the  company.  *  "  * 
It  is  true  that  the  plaintiff,  as  director  only,  had  no 
power  over  the  corporate  assets.  He  could  neither 
assign  nor  transfer  them  to  himself,  or  any  one  else,, 
by  his  own  act.  But  the  plaintiff,  in  place  of  procur- 
ing an  assignment  or  transfer  by  the  voluntary  actio-n  of 
the  corporation,  procured  what  is  equivalent,  by  legal 
process  issued  on  his  application.  Construing  the 
language  of  the  statute  in  connection  with  its  obvious 
policy,  we  think  a  construction  w^hich  disables  an  officer 
of  an  insolvent  corporation  from  acquiring  a  preferentiat 

B  CAS— 40 


626  OFFICERS  [vol  I 

O'Brien  v.  East  River  Bridg-e  Co 

lien  on  the  corporate  assets  by  legal  process  is  justi- 
fied." 

For  these  reasons  I  concur  with  Mr.  Justice 
Patterson  that  the   judg-ment  should  be  reversed. 

Ingraham,  J.  I  cannot  concur  in  Mr.  Justice 
Patterson's  construction  of  section  48  of  the  stock 
corporation  law.  Laws  1892,  c.  688.  That  section 
first  provides  that  : 

"No  corporation  which  shall  have  refused  to  pay 
any  of  its  notes  or  other  oblig-ations  when  due  in  law- 
ful money  of  the  United  States,  nor  any  of  its  officers 
■or  directors,  shall  transfer  any  of  its  property  to  any 
of  its  officers,  directors  or  stockholders,  directly  or 
indirectly,  for  the  payment  of  any  debt,  or  upon  an}' 
■other  consideration,  than  the  full  value  of  the  propert}' 
paid  in  cash." 

The  prohibition  contained  in  this  clause  applies  only 
to  a  corporation  which  shall  have  refused  to  pay  any  of 
its  notes  or  other  oblig-ations  when  due  ;  and  such  a 
corporation,  namel3%  one  which  shall  have  refused  to 
pay  any  of  its  notes  or  other  oblig-ations  when  due,  is 
absolutely  prohibited  from  transferring-  any  of  its 
property  to  any  of  its  officers,  directors,  or  stock- 
holders directly  or  indirectly,  for  the  payment  of  any 
'debt,  or  upon  any  other  consideration  than  the  full 
value  of  the  property  paid  in  cash.  The  section  then 
•continues  : 

"No  conveyance,  assig-nment  or  transfer  of  any  prop- 
erty of  any  such  corporation,  by  it  or  by  any  officer, 
•director  or  a  stockholder  thereof,  nor  any  payment 
made,  judg-ment  suffered,  lien  created  or  security  g-iven 
by  it  or  by  any  officer,  director  or  stockholder,  when 
-the  corporation  is  insolvent  or  its  insolvency  is  immi- 
nent, with  the  intent  of  g-iving-a  preference  to  any  par- 
ticular creditor  over  other  creditors  of  the  corporation, 
-.shall  be  valid." 

Here  is  a  prohibition  of  a  payment  to  any  person 
^vith  the  intent  of  giving- a  preference  to  any  particular 
.creditor.  But  both  clauses  of  the  section  apply  to  the 
same  corporation,   viz.  a  corporation  which  shall  have 


I 


B  CAS]  OFFICERS  627 

O'Brien  v.  East  River  Bridge  Co 

refused  to  pay  any  of  its  notes  or  other  oblig-ations 
when  due  ;  prohibiting-  it — First,  from  making-  a  trans- 
fer of  any  of  its  property  to  any  of  its  officers,  direct- 
ors, or  stockholders  except  upon  the  payment  of  the 
full  value  of  the  property  in  cash  ;  and,  second,  from 
making-  any  conveyance,  assig-nment,  or  transfer  of  anv 
of  its  property,  or  making  any  payment,  suffering-  anv 
judg-ment,  creating-  any  lien,  or  g-iving-  any  security, 
when  such  corporation,  namelv,  a  corporation  which 
shall  have  refused  to  pay  any  of  its  notes  or  other 
oblig-ations  when  due,  is  insolvent,  or  insolvency  is 
imminent,  with  intent  of  gfiving-  a  preference.  The 
statute  in  force  before  the  enactment  of  the  stock  cor- 
poration law  was  materiall}'  chang-ed  by  the  latter  act. 
In  the  Revised  Statutes  (1  Rev.  St.  p.  603,  §  4)  it  was 
provided  that  when  any  incorporated  company  shall 
have  refused  to  pay  any  of  its  notes,  or  other  evidences 
of  debt,  it  should  not  be  lawful  for  such  company  to 
transfer  any  of  its  property  to  any  officer  or  stock- 
holder of  such  company,  directly  or  indirectly,  for  the 
payment  of  any  debt ;  and  it  should  not  be  lawful  to 
make  any  transfer  or  assignment,  in  contemplation  of 
the  insolvency  of  such  company,  to  an}-  person  or  per- 
sons whatever.  It  was  held  by  the  supreme  court  in 
the  case  of  Harris  v.  Thompson,  15  Barb.  64,  that  the 
words  "such  company,"  in  the  second  clause  of  this 
section,  referred  to  an  incorporated  company,  and  the 
words  used  were  capable  of  that  construction.  This 
provision  of  the  Revised  Statutes  was  repealed  by  sec- 
tion 23  of  the  g-eneral  corporation  law  (chapter  563, 
Laws  1890).  By  section  48  of  chapter  564  of  the  Laws 
of  1890,  which  became  a  law  at  the  same  time  as  did 
the  general  corporat:ion  law,  it  was  provided  that  no 
corporation  which  shall  have  refused  to  pay  any  of  its 
notes,  or  other  obligations  when  due,  shall  assign  an\' 
of  its  property  to  any  of  its  officers,  directors,  or  stock- 
holders for  the  payment  of  any  debt  ;  and  no  officer, 
director,  or  stockholder  thereof  shall  make  any  transfer 
or  assignment  of  its  property,  or  of  any  stock  therein, 
to   any    person     in    contemplation    of    its    insolvency. 


628  OFFICERS  [vol  I 

O'Brien  z'.  East  River  Bridg-e  Co 

There  can  be  no  doubt,  I  think,  but  that  this  section 
would  only  affect  a  corporation  which  shall  have  re- 
fused to  pay  any  of  its  notes  or  other  obligfations  when 
due.  The  second  prohibition  contained  in  the  section 
was  that  no  officer,  director,  or  stockholder  thereof, 
namely,  a  corporation  which  shall  have  refused  to  pay 
any  of  its  notes,  or  other  oblig-ations  when  due,  shall 
make  any  transfer  or  assig-nment  to  any  person  in 
contemplation  of  its  insolvency.  This  section  was 
amended  by  chapter  688  of  the  Laws  of  1892.  Section 
48  of  the  act  as  then  amended  is  the  section  now  under 
consideration,  and  to  g"ive  the  second  prohibition  con- 
tained in  this  section  a  construction  which  would  make 
it  apply  to  all  corporations  would  be  disreofarding-  the 
express  lang^uag-e  used,  w^hich  confines  such  a  prohibi- 
tion to  such  a  corporation  as  had  been  before  named  in 
the  section,  and  would  make  the  second  prohibition 
refer,  not  to  such  a  corporation,  but  to  all  corporations, 
which,  it  seems  to  me,  would  be  contrary  to  the  ex- 
press meaning-  of  the  words  used. 

There  is  no  evidence  to  show  that,  prior  to  Aug-ust 
9th,  the  Madison  Square  Bank  had  refused  to  pay  an}' 
of  its  notes  or  other  oblig^ations  when  due.  The  bank 
was  open  for  business,  and  apparently  did  pay,  on  de- 
mand, all  its  obligfations  up  to  3  o'clock  on  Aug-ust  8th, 
the  day  the  check  in  question  was  drawn.  It  had  on 
deposit  on  the  nig-ht  of  Aug-ust  8th,  with  the  St.  Nich- 
olas Bank,  its  clearing;-house  ag-ent,  about  $28,000,  and 
that  bank  further  held  a  larg-e  amount  of  bills  receiv- 
able and  other  collateral,  belong-ing-  to  the  Madison 
Square  Bank,  as  security  for  any  amount  owing-  by  the 
Madison  Square  Bank  to  it  ;  and  the  officers  of  the  St. 
Nicholas  Bank' apparently  had  no  knovvledg-e  of  the 
Madison  Square  Bank's  insolvency  prior  to  the  morn- 
ing- of  Aug-ust  8,  1893  ;  nor  do  I  think  that  the  evidence 
in  this  case  shows  that  there  was  a  conveyance,  assig-n- 
ment,  or  transfer  of  any  property,  or  any  payment  made 
b}^  this  bank,  or  any  officer,  director,  or  stockholder 
thereof,  with  the  intent  of  g-iving-  a  preference  to  the 
defendant  as  a  creditor. 


B  CAS]  OFFICERS  629 

O'Brien  v.  East  River  Bridg-e  Co 

I  concur  with  the  view  taken  by  the  learned  referee 
in  his  opinion  as  to  the  construction  of  this  statute. 
As  before  stated,  the  section  in  question  prohibits  two 
acts  of  the  bank  or  its  officers:  First,  the  transfer  of 
any  of  its  property  to  any  of  its  officers,  directors,  or 
stockholders,  directly  or  indirectly,  for  the  payment 
of  any  debt,  or  for  any  other  consideration  than  the 
full  payment  of  the  value  of  the  property  in  cash. 
This  prohibition  is  absolute.  When  a  bank  has  failed 
to  pay  any  of  its  notes  or  obligations  when  due,  no  offi- 
cer, director,  or  stockholder  thereof  can  receive  from 
the  bank  or  its  officers  any  propert}'  of  the  corporation 
for  ciny  other  consideration  than  the  full  value  of  the 
property,  paid  in  cash.  The  object  of  the  statute  is  to 
prevent  the  persons  named  from  receiving-  any  property 
from  the  bank  upon  any  other  consideration,  after  it 
has  declared  its  inability  to  meet  its  accruing-  obliga- 
tions. This  does  not  depend  upon  the  solvency  or  in- 
solvenc}^  of  the  bank,  nor  upon  the  intent  when 
such  transfer  was  made.  The  second  prohibition  is 
that  no  such  corporation,  nor  its  officers,  directors, 
or  stockholders,  shall  make  any  conveyance,  as- 
signment, or  transfer  to  any  person,  when  the  cor- 
poration is  insolvent  or  insolvency  is  imminent, 
with  the  intent  of  giving  a  preference  to  a  particular 
creditor.  The  act  that  is  here  prohibited  is  an  act  of 
the  bank,  or  any  one  acting  for  or  on  behalf  of  the 
bank,  its  agents,  or  those  in  charge  of  its  affairs, 
whether  as  officers,  directors,  or  stockholders,  creating 
a  preference.  The  intent  necessary  to  make  such  a 
transfer  illegal  is  an  intent  existing  on  behalf  of  the 
corporation  or  those  assuming  to  act  for  it  in  making 
the  transfer.  It  seems  to  me  that  the  act  prohibited 
must  be  an  act  of  the  corporation,  or  an  officer,  director, 
or  stockholder  acting  for  the  corporation,  by  whom 
the  property  is  transferred,  with  the  intent  of  prefer- 
ring a  particular  creditor.  It  seems  that  this  construc- 
tion of  the  statute  was  directly  approved  by  the  court 
of  appeals  in  the  case  of  French  v.  Andrews,  145  N. 
Y.  444,  40  N.  E.  214.     In  that  case  the  court  held  that 


630  OFFICERS  [vol  I 

O'Brien  v.  East  Rivei'  Bridg-e  Co 

"merely  permitting;  a  creditor  to  obtain  a  judg-ment  in 
the  regfular  course  of  legfal  proceeding's  is  not,  on  the 
part  of  the  officers  of  the  corporation,  a  transfer  or 
assig"nment  of  the  property  of  the  corporation,  within 
the  meaning-  of  the  statute  quoted.  And  the  conduct 
of  the  treasurer  in  g-iving-  notes  which  migfht  be  sued 
by  the  defendant  in  the  municipal  court"  did  not  bring- 
the  case  within  the  contemplation  of  the  statute. 
Now,  in  this  case,  a  director  of  this  bank,  who  is 
president  of  the  defendant,  a  corporation  who  was  a 
depositor  in  the  bank,  sigfned,  as  president  of  the 
defendant,  a  check  upon  the  Madison  Square  Bank, 
and  delivered  that  check  to  another  bank,  to  be  credited 
to  the  account  of  the  defendant.  It  could  not  be  claimed 
that  either  of  these  acts  was  the  act  of  a  director  of 
the  Madison  Square  Bank,  but  they  were  the  acts 
of  the  defendant,  solely  in  the  interest  of  such 
defendant,  and  had  no  relation  to  the  position  of  the 
president  of  the  defendant  as  a  director  of  the  Madison 
Square  Bank  ;  and  no  authority  that  he  derived  as 
such  director  had  any  relation  to  his  act  of  sig^ning" 
this  check,  or  delivering-  it  to  the  Hanover  National 
Bank  for  collection.  That  check  would  have  been 
collected  as  it  was,  whether  Uhlman  had  been  director 
of  the  Madison  Square  Bank  or  not  ;  and  no  act  of  his 
as  director  had  anything-  to  do  with  the  execution  or 
collection  of  the  check.  The  check,  when  presented, 
was  paid  by  the  St.  Nicholas  Bank  under  a  contract 
which  it  had  with  the  Madison  Square  Bank,  and  not 
as  the  ag-ent  of  the  Madison  Square  Bank.  That  was 
expressly  determined  in  the  case  of  O'Brien  v.  Grant, 
146  N.  Y.  163,  40  N.  E.  871.  Neither  the  Madison 
Square  Bank,  nor  any  of  its  officers,  directors,  or  stock- 
holders, transferred  any  of  the  property  of  the  bank, 
or  made  any  payment  by  the  bank  to  the  defendant. 
If  Uhlman,  as  director  of  the  bank,  had  obtained  anv 
money  from  the  bank  after  it  had  refused  to  pay  its 
oblig-ations,  either  in  payment  of  a  debt  or  for  any  other 
consideration  except  in  payment  of  its  full  value  in 
cash  to  the  bank,  that  transfer  would  have  been   void. 


B  CAS]  OFFICERS  631 

Notes 

under  the  first  clause  of  the  section  of  the  banking-  law 
before  referred  to.  But  this  payment  to  the  defendant 
was  not  a  payment  by  the  bank,  or  by  any  of  its  offi- 
cers, directors,  or  stockholders,  and  it  therefore  seems 
to  me  that  the  conclusion  arrived  at  by  the  learned 
referee  was  correct,  and  the  judg-ment  should  be  af- 
firmed. 


Officer  Using  Knowledge  to  Obtain  Preference. —  .\  bank  officer  or 
director  cannot  use  knowledg-e  obtained  of  the  insolvency  of  his- 
bank  to  secure  a  preference  over  other  creditors.  Lamb  v.  Paunell, 
28  W.  Va.  663  ;  Lamb  v.  Cecil,  28  W.  Va.  653.  So  a  director  who, 
knowing-  through  his  official  capacity  of  the  approaching-  failure  of 
his  bank,  draws  out  the  deposit  of  a  firm  of  which  he  is  a  member 
may  be  compelled  to  refund.  Swentzel  v.  Penn.  Bank,  147  Pa.  St, 
140,  30  Am.  St.  Rep.  718. 

Preference  of  Directors— Right  of  Preference  Upheld. — The  direct- 
ors and  officers  of  a  corporation  having  the  same  right  as  other 
persons  to  deal  with  the  corporation,  are  entitled,  upon  the  insol- 
vency of  the  corporation,  to  receive  payment  for  their  claims  ir>; 
money  or  goods,  provided,  of  course,  that  the  debt  is  contracted  in 
g-ood  faith,  and  that  there  is  an  absence  of  fraud  on  their  part. 
Buncombe  i>.  Railroad  Co.,  84  N.  Y.  190,  4  Am.  &.  Fng.  R.  Cas.  190, 
88  N.  Y.  1,  13  Am.  &  Eng.  R.  Cas.  84  ;  Harts  v.  Brown,  77  111.  226  ; 
Wilkinson  v.  Bauerle,  41  N.  J.  Eq.  635  ;  Gordon  v.  Preston,  1  Watts. 
(Pa.)  386;  Kitchen  v.  Railway  Co.,  69  Mo.  224  ;  Oil  Co.  v.  Marbury, 
91  U.  S.  587  ;  Hospes  v.  Car  Co.,  48  Minn.  174,  36  Am.  &  Eng.  Corp- 
Cas.  206. 

If  a  director,  officer,  or  stockholder,  of  a  corporation  deals  with  it 
in  his  individual  capacit)-,  the  law  will  protect  him  as  well  as  any 
other  party.  His  relation  to  the  corporation  only  goes  to  the  ques- 
tion of  the  good  faith  of  his  transactions  with  it.  Smith  v.  Skeary, 
47  Conn.  47. 

In  this  case  a  corporation  transferred  a  quantity  of  its  goods  to- 
two  of  its  directors  to  be  sold  by  them  and  the  proceeds  applied  in 
payment  of  a  joint  claim  of  large  amount  which  they  had  against 
it.  The  corporation  was  in  fact  insolvent,  but  it  was  presumed  by 
the  parties  at  the  time  that  it  was  able  to  pay  all  its  debts.  The 
transaction  was  in  entire  good  faith,  and  with  no  intention  to 
defraud  creditors.  Held,  that  there  was  no  principle  of  law  that 
rendered  the  transaction  fraudulent,  or  otherwise  void. 

While  directors  of  a  corporation  are  bound  to  discharge  their 
duties  prudently,  deliberately  and  faithfully,  and  apply  the  assets 
of  the  corporation,  in  case  of  insolvency',  for  the  benefit  of  creditors- 
in  preference  to  stockholders  and  other  persons,  personally  or  offi- 
cially related  to  the  corporation,  they  are  not  technical  trustees,, 
nor  bound  to  apply  the  assets  ratably  among  the  general  creditors. 
They  may  not  only  make  preferences  between  creditors,  but  such 
preferences  may  be  made  in  their  own   favor  if  they  be  creditors. 


^32  OFFICERS  [vol  1 

Notes 

But  in  such  cases  they  must  act  with  the  utmost  good  faith.  Plant- 
.ers'  Bank  v.  Whittle,  78  Va.  737,  6  Am.  &  Eng-.  Corp.  Cas.  298. 

Where  a  creditor  of  a  corporation  holds  its  note  secured  by  mort- 
•g-ag'e  Tipon  the  corporate  property,  and  also  endorsed  by  its  directors 
there  is  no  principle  of  law  which  will  compel  him  to  proceed  against 
the  endorsers  and  surrender  to  other  creditors  the  property  which 
lie  holds  as  security,  even  though  the  corporation  be  insolvent. 
iGarrett  v.  Burlington  Plow  Co.,  70  Iowa  697. 

In  this  case  an  insolvent  corporation  mortgaged  all  of  its  real  and 
personal  property  to  a  trustee  to  secure  certain  specific  debts,  and 
pledged  all  of  its  notes  and  accounts  to  another  creditor  to  secure 
liis  claim,  thus  encumbering  all  of  its  property,  but  it  was  not  the 
intention  in  either  case  to  make  an  absolute  conveyance  of  the  prop- 
-'€rty.  Held,  in  addition  to  the  above,  that  although  the  two  trans- 
.aclions  be  regarded  as  one,  they  did  not  amount  to  an  assignment 
■^OT  the  benefit  of  creditors,  which  would  be  void  because  of  prefer- 
ences. 

Directors  and  officers  of  a  corporation  who  are  also  its  creditors, 
may  protect  themselves  from  loss  by  the  same  means  open  to  other 
creditors.  The  fact  that  one  is  an  officer  of  a  corporation  does  not 
deprive  him  of  the  right  to  enter  into  competition  with  other  cred- 
itors in  securing  the  payment  of  his  just  claim.  Buell  v.  Bucking- 
ham, 16  Iowa  284  ;  Whitewell  v.  Warner,  20  Vt.  425  ;  Merrick  v. 
Pennsylvania  Coal  Co.,  66  111.  472  ;  Hay  ward  v.  Pilgrim  Society,  21 
Pick.  (Mass.)  270  ;  Hoyle  v.  P.  &  M.  R.  Co.,  54  N.  Y.  314. 

An  officer  of  a  corporation,  who  is  also  its  creditor,  may  attach 
its  property  for  the  collection  of  his  debt,  though  he  knows  of  its 
failing  circumstances,  but  is  in  no  way  responsible  therefor,  and 
though  he  knows  that  his  attachment  will  precipitate  a  crisis  in  its 
affairs  ;  and  his  attachment  will  be  good  as  against  subsequent 
attaching  creditors  and  mortgagees.  RoUin  v.  Shaver  Wagon  & 
Carriage  Co.,  80  Iowa  380,  and  cases  cited. 

Same — Right  Denied. — Directors  of  a  corporation  who  are  also  its 
•creditors  have  no  right  to  take  advantage  of  their  position  as  direct- 
-ors  to  secure  preferences  for  themselves  as  creditors,  especially 
where  other  creditors  would  be  injured  by  such  action.  Haywood 
Tj.  Lincoln  Lumber  Co.,  64  Wis.  639  ;  Richards  v.  New  Hampshire 
Ins.  Co.,  43  N.  H.  263  ;  Howe  v.  Sandford  Fork  &  Tool  Co.,  44  Fed. 
Rep.  231 ;  Koehler  v.  Black  River  Falls  Iron  Co.,  67  U.  S.  715. 

Upon  this  question  the  circuit  court  of  the  United  States  in  Lippin- 
'cott  V.  Shaw  Carriage  Co.,  25  Fed.  Rep.  577,  says :  "While  it  is 
generally  conceded  that  a  corporation,  notwithstanding  insolvency, 
continues  possessed  of  a  general  power  of  management  of  its  affairs, 
and  like  natural  persons  may  give  preferences  by  way  of  payment 
-or  security  to  one  creditor  or  class  of  creditors,  over  others  ;  yet  in 
close  analogy  to  the  rule  which  forbids  the  giving  of  preferences  hy 
individual  debtors  for  the  purpose  of  securing,  or  in  such  manner 
as  to  secure  advantage  or  benefit  to  themselves,  and  in  manifest 
accord  with  the  tendency  of  judicial  opinion  as  expressed  upon 
consideration  of  kindred  questions,  it  has  been  decided  in  a  number 
•  of  cases  that  preferences  given  by  insolvent  corporations  in  such 
-manner  as  to  be  of  special  benefit  to  the  directors  or  managing 
agents,  or  any  of  them,  will  be  set  aside.  This,  as  it  seems  to  me, 
is  the  salutary  rule,  and  the  only  rule  which  can  be  administered 
^with  uniformity  and  fairness.      Indeed,  it  has  been  often  said  by 


B  CAS]  OFFICERS  633 

Notes 

judges,  including  those  of  the  federal  supreme  court,  that  the  prop- 
erty of  an  insolvent  corporation  is  a  trust  fund,  and  the  directors 
trustees  for  the  creditors  ;  and  if  this  were  strictly  so  it  is  manifest 
that  no  preferences  whatever  could  be  allowed  between  creditors 
standing  in  the  same  relation  to  the  fund.  These  statements  are, 
however,  true  in  a  qualified  sense,  and  lead  logicall3%  if  not  neces- 
sarily, to  the  conclusion  that  in  such  cases  the  directors,  if  they 
give  preferences,  must  do  it  unbiased  by  considerations  of  personal 
iidvantage  or  gain.  In  some  of  the  cases  in  which  the  question  has 
recently  arisen,  the  subject  has  been  so  fully  considered  upon  author- 
ity and  principle  as  to  make  a  further  discussion  or  review  at  this 
time  unnecessary.  The  following  cases  are  all,  in  some  degree, 
relevant,  and  a  few  of  the  first  named  directlj'  in  point  :  Bradley  v. 
Farewell,  1  Holmes  433  ;  Corbett  v.  Woodward,  5  Sawy.  403  ;  Stout 
z'.  Yaeger,  4  McCrary  486,  S.  C.  13  Fed.  Rep.  S02  ;  Trustees  v.  Bos- 
seiux,  3  Fed.  Rep.  817  ;  Coons  v.  Tome,  9  Fed.  Rep.  532;  Richards 
:'.  New  Hampshire  Co.,  43  N.  H.  263;  Duncomb  v.  Railroad  Co.,  88 
N.  Y.  1,  13  Am.  &  Eng.  R.  Cas.  84  ;  Hopkins'  Appeal,  90  Pa.  St.  76; 
Robins  i'.  Embry,  1  Smedes  &  M.  207  ;  Curran  v.  Arkansas,  15  How. 
304;  Koehler  z^ "Black  River  F.  I.  Co.,  2  Black  715  ;  Drury  v.  Cross, 
7  Wall.  299 ;  Railroad  Co.  v.  Howard,  Id.  392  ;  Sawyer  v.  Hoag,  17 
Wall.  610;  Jackson  v.  Ludeling,  21  Wall.  616;  County  of  Morgan  v. 
Allen,  103  U.  S.  498  ;  Scovill  v.  Thayer,  105  U.  S.  143  ;  Patterson 
V.  Lynde,  106  U.  S.  519  ;  Cook  Co.  Nat.  Bank  v.  U.  S.,  107  U.  S.  445  ; 
f)sgood  V.  King,  42  Iowa  478  ;  Goodin  v.  Cincinnati,  etc.,  18  Ohio  St. 
182;  Swepson  v.  Bank,  9  Eea  (Tenn.)  713,  3  Am.  &  Eng.  Corp.  Cas. 
70  ;  Marr  v.  Union  Bank,  4  Cold.  486;  Tavl.  P.  Corp.  ^^  6,  12,  634, 
668,  759  ;  Emporium  R.  E.  Co.  v.  Emrie,  54  111.  345.  Cited  by  defend- 
ants to  the  contrary  :  Planters'  Bank  v.  Whittle,  78  Va.  737,  6  Am. 
I'v:  Eng.  Corp.  Cas.  293;  Buell  v.  Buckingham,  16  Iowa  284;  Gordon 
r'.  Preston,  1  Watts  385  ;  Railroad  Co.  v.  Claghorn,  1  Spear  Eq.  545  : 
Whitwell  V.  Warner,  20  Vt.  452  ;  Sargent  v.  Webster,  13  Mete.  497  ; 
Ashhurst's  Appeal,  60  Pa.  St.  290  ;  Catlin  v.  Eagle  Bank,  6  Conn. 
233  ;  Smith  i'.  Skeary,  47  Conn.  47  ;  Savings  Bank  v.  Bates,  8  Conn. 
504;  Pondville  Co.  z'.  Clark,  25  Conn.  97;  Ringo  7/.  Biscoe,  8  Eng. 
(Ark.)  563;  Dana  v.  Bank  U.  S.,  5  Watts  Sz  S.  223." 

In  Hill  7'.  Pioneer  Lumber  Co.,  113  N.  Car.  173,  it  was  held  that  a 
director  could  not  take  advantage  of  his  superior  means  of  infor- 
mation as  to  the  condition  of  the  corporation  to  secure  a  debt  due 
him  from  the  corporation,  either  by  a  confession  of  judgment  or 
otherwise. 

As  long  as  a  private  corporation  for  profit  remains  solvent,  its 
directors  may,  with  the  knowledge  of  the  stockholders,  deal  with  the 
corporation,  loan  it  money,  take  security,  or  buy  property  for  it  the 
same  as  a  stranger.  During  its  solvency,  the  directors  are  the 
agents  or  trustees  of  the  stockholders,  and  owe  no  duties  and  obli- 
gations to  others,  but  the  instant  the  corporation  becomes  insolvent. 
its  assets  become  a  trust  fund  for  the  payment  of  its  creditors,  and 
the  directors  can  no  longer  deal  with  them  for  their  own  advantage, 
or  in  such  way  as  to  gain  priority  for  themselves  over  other  credit- 
ors. Roseboom  v.  Whittaker,  132  111.  81,  28  Am.  &  Eng.  Corp.  Cas. 
478. 

It  was  shown  in  this  case  that  a  majoritj'  of  the  directors  of  a 
private  corporation,  having-  knowledge  of  its  insolvencj',  paid  cer- 
tain debts  of  the  corporation  upon  which  thej'  were  liable  as  guar- 


634  OFFICERS  [vol  I 

Notes 

antors,  and  took  the  judg'nient  note  of  the  company  therefor  due 
one  day  after  date  without  grace,  upon  which  note  judg-ment  was 
confessed  in  favor  of  such  directors,  and  all  the  property  of  the 
company  was  levied  on  by  execution  issued  on  such  judgment. 
Held,  that  the  acts  of  the  directors  in  attempting  to  secure  them- 
selves at  the  expense  of  other  creditors  were  fraudulent  and  void, 
and  were  properly  set  aside  at  the  instance  of  such  other  creditors. 

Pending  an  action  brought  against  a  corporation  for  injuries 
resulting  from  the  negligence  of  the  corporation,  the  latter,  at  that 
time  being  insolvent,  mortgaged  its  propertj'  to  its  directors  for 
money  advanced  by  them  for  its  purposes.  The  plaintiff  in  the 
action,  after  recovering  judgment,  levied  on  the  corporate  propertj', 
and  filed  a  bill  in  equity  to  set  aside  the  said  mortgage.  Held,  that 
the  plaintiff  was  entitled  to  have  the  mortgage  declared  void  as 
against  him.  Olney  v.  Conanicut  Land  Co.,  16  R.  I.  597,  26  Am.  li 
Eng.  Corp.  Cas.  485. 

It  has  been  said  that  after  a  business  corporation  ceases  to  be  a 
"going  concern,"  and  is  no  longer  possessed  of  vitality  enough  to 
survive  and  continue  its  business,  and  the  board  of  directors  con- 
clude that  they  can  go  no  further,  the  directors  then  become  eo 
instanti  by  that  very  act,  trustees  for  the  benefit  both  of  the  stock- 
holders and  the  creditors,  and  it  is  not  within  the  power  or  compe- 
tency of  the  trustees  to  prefer  themselves,  the  board  of  directors, 
as  creditors  of  the  concern.  Their  relation  becomes  one  of  trustee 
to  the  whole  property,  and  they  must  administer  the  whole  assets 
of  the  corporation  for  the  benefit  of  all  the  creditors,  to  be  distrib- 
uted pari  passu  equally  between  them  ;  and  the)'  cannot,  after  the 
corporation  reaches  that  juncture  and  condition  of  affairs,  make  a 
preference  for  themselves.  Consolidated  Tank  Line  Co.  v.  Kansas 
City  Varnish  Co.   (C.  C),  43  Fed.  Rep.  204. 

In  this  case,  as  reported  in  45  Fed.  Rep.  7,  the  directors  of  a 
corporation  financially  embarrassed,  who  held  claims  against  the 
corporation,  caused  the  notes  of  the  company,  paj^able  to  themselves, 
to  be  drawn  and  antedated,  and  had  them  discounted  by  the  defend- 
ant bank  ;  thereupon  they  executed  a  deed  of  trust  of  all  the  assets 
of  the  company  as  security  for  the  notes  so  discounted  among  other 
liabilities.  In  a  proceeding  brought  by  unsecured  creditors  to  set 
aside  this  deed  of  trust,  it  was  held  that  being  a  security  for  debts 
upon  which  the  directors  were  personally  liable  as  endorsers,  the 
transaction  was  in  effect  a  preference  to  themselves,  and  therefoi'e 
fraudulent  and  void. 

An  insolvent  corporation,  being  indebted  to  its  officers  and  direct- 
ors, the  latter  executed  the  notes  of  the  corporation  in  their  own 
favor,  and  having  obtained  judgment  thereon  by  default,  issued 
execution  upon  the  judgment.  In  the  distribution  of  the  proceeds 
of  the  sheriff's  sale  of  the  personal  property  of  the  corporation  under 
the  execution,  it  was  held  that  this  conduct  of  the  officers  was  a 
fraud  in  law,  which  gave  them  no  preference  over  general  creditors. 
Hopkin's  &  Johnson's  Appeal,  90  Pa.  St.  69. 


B  CAS]  ULTRA  VIRES  635 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 


First  Nat.  Bank  of  Concord,  N.  H. 

V. 

Hawkins. 

[Supreme  Court  of  the  United  States,  May  15,  iSgg.) 

Holding   Stock    in   Another     National    Bank — Ultra  Vires.- — It    is 

ultra  vires  on  the  part  of  a  national  bank  to  purchase  with  its  sur- 
plus funds,  as  an  investment,  and  hold  as  such,  shares  of  stock  in 
another  national  bank. 

Same — Same — Estoppel. — A  national  bank  which  has  purchased, 
as  an  investment,  and  holds  as  such,  shares  of  stock  in  another 
national  bank  is  not  estopped  in  an  action  by  the  receiver  of  the 
latter  to  enforce  the  stockholders'  liability  arising-  under  an  assess- 
ment by  the  comptroller  of  the  currency  to  protect  itself  by  alleging- 
the  unlawfulness  of  its  own  action  in  so  purchasing-  and  holding  the 
stock. 

Krror  by  defendant  to  the  United  States  Circuit 
Court  of  Appeals  for  the  First  Circuit.      Reversed. 

In  May,  1895,    Edward  Hawkins,  as  receiver  of  the 
Indianapolis  National  Bank,   broug-ht  a  suit  in  the  cir- 
cuit court  of  the  United  States  for   the   dis-     ^  ^pst  t  d 
trict  of  New  Hampshire    ag-ainst    the  First 
National   Bank  of  Concord.       At    the  trial  a  jur}'^  was 
waived,  and   the  court  found  the  following"  facts  : 

"The  plaintiff  is  receiver  of  the  Indianapolis  National 
Bank  of  Indianapolis,  which  bank  was  duly  organized 
and  authorized  to  do  business  as  a  national  banking" 
association.  The  bank  was  declared  insolvent  and 
ceased  to  do  business  on  the  24th  day  of  July,  1893. 
The  plaintiff  was  duly  appointed  and  qualified  receiver 
of  the  bank  on  the  3d  day  of  Augfust,  1893,  and  took 
possession  of  the  assets  of  the  bank  on  the  8th  da}'  of 
the  same  month. 

"The  capital  stock  of  the  bank  was  3,000  shares,  of 
the  par  value  of  $100  each.  On  the  25th  day  of  Octo- 
ber,   1893,   an   assessment   was   ordered   by  the  comp- 

*See  note  at  end  of  case. 


()3()  ULTRA  VIRES  [VOL  I 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

troUer  of  $100  per  share  on  the  capital  stock  of  the 
bank  to  enforce  the  individual  liability  of  stockholders, 
and  an  order  made  to  pay  such  assessment  on  or  before 
the  25th  day  of  November,  1893  ;  and  the  defendant 
was  duly  notified  thereof. 

"The  defendant,  being:  a  national  banking  association, 
duly  orgfanized  and  authorized  to  do  business  at  Con- 
cord, N.  H.,  on  the  21st  day  of  May,  1889,  with  a  por- 
tion of  its  surplus  funds,  purchased  of  a  third  party, 
authorized  to  hold  and  make  sale,  100  shares  of  the 
stock  of  the  Indianapolis  National  Bank,  as  an  invest- 
ment, and  has  ever  since  held  the  same  as  an  invest- 
ment. The  defendant  bank  has  appeared  upon  the 
books  of  the  Indianapolis  bank  as  a  shareholder  of  100 
shares  of  its  stock  from  the  time  of  such  purchase  to 
the  present  time.  During-  such  holding:  the  defendant 
bank  received  annual  dividends  declared  by  the  Indian- 
apolis bank  prior  to  July,  1893.  The  defendant  has 
■not  paid  said  assessment,  or  any  part  thereof." 

After  arg-ument,  the  court,  on  July  28,  1896,  entered 
iudg-meut  in  favor  of  the  plaintiff  for  the  sum  of  $11,- 
()4().67  and  costs.  From  that  judgment  a  writ  of  error 
from  the  United  States  circuit  court  of  appeals  for  the 
First  circuit  was  sued  out,  and  by  that  court  the 
judgment  of  the  trial  court  was  on  March  5,  1897, 
affirmed.  33  U.  S.  App.  747,  24  C.  C.  A.  444,  and  79 
Fed.  51.  From  the  judgment  of  the  circuit  court  of 
appeals  a  writ  of  error  was  allowed  to  this  court. 

Frank  S.  Strceter,  for  plaintiff  in  error. 
John  G.  Carlisle  ?ind  John  W.  Kern,  for  defendant  in 
error. 

Mr.  Justice  Shiras,  after  stating  the  facts  in  the 
foregoing  language,  delivered  the  opinion  of  the  court. 

The  questions  presented  for  our  consideration  in 
this  case  are  whether  one  national  bank  can  lawfully 
acquire  and  hold  the  stock  of  another  as  an  investment, 
and,  if  not,  whether,  in  the  case  of  such  an  actual  pur- 
chase, the  bank  is   estopped  to  deny  its  liability,  as  an 


B  CAS]  ULTRA  VIRES  637 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

apparent  stockholder,  for  an  assessment  on  such  stock 
ordered  by  the  comptroller  of  the  currency. 

By  Section  5136  of  the  Revised  Statutes  a  national 
banking-  association  is  authorized  "to  exercise  by  its 
board  of  directors,  or  duly  authorized  officers  and 
ag-ents,  subject  to  law,  all  such  incidental  powers  as 
shall  be  necessary  to  carry  on  the  business  of  banking-  : 
by  discounting-  and  neg-otiating-  promissory  notes, 
drafts,  bills  of  exchang-e  and  other  evidences  of  indebt- 
edness ;  by  receiving- deposits  ;  by  buying- and  selling- 
exchang-e,  coin  and  bullion  ;  by  loaning-  money  on 
personal  security  ;  and  by  obtaining-,  issuing-  and 
circulating-  notes  according-  to  the  provisions  of  this 
title." 

In  construing- this  provision,  it  was  said  by  this  court 
in  First  Nat.  Bank  of  Charlotte  i-.  National  Exch.  Bank 
of  Baltimore,  92  U.  S.  122,  that  "dealing-  in  stocks  is 
not  expressly  prohibited,  but  such  prohibition  is  implied 
from  the  failure  to  g-rant  the  power.  In  the  honest 
exercise  of  the  power  to  compromise  a  doubtful  debt 
owing-  to  a  bank,  it  can  hardly  be  doubted  that  stocks 
may  be  accepted  in  payment  and  satisfaction,  with  a 
view  to  their  subsequent  saleor  conversion  into  money. 
so  as  to  make  g-ood  or  reduce  an  anticipated  loss.  Such 
a  transaction  would  not  amount  to  a  dealing-  in  stocks." 

And  in  the  recent  case  of  Bank  i'.  Kennedv,  167  U. 
S.  362,.  17  Sup.  Ct.  831,  it  was  said  to  be  "se'ttled  that 
the  United  States  statutes  relative  to  national  banks 
constitute  the  measure  of  the  authority  of  such  corpo- 
rations, and  that  they  cannot  rig-htfully  exercise  any 
powers  except  those  expressly  g-ranted,  or  which  are 
incidental  to  carrying-  on  the  business  for  which  they 
are  established.  No  express  power  to  acquire  the  stock 
of  another  corporation  is  conferred  upon  a  national 
bank,  but  it  has  been  held  that,  as  incidental  to  the 
power  to  loan  money  on  personal  security,  a  bank  may. 
in  the  usual  course  of  doing-  such  business,  accept 
stock  of  another  corporation  as  collateral,  and  by  the 
enforcement  of  its  rig-hts  as  pledg-ee  it  may  become  the 
owner  of  the  collateral,  and    be  subject  to  liability   as 


638  ULTRA  VIRES  [vol  I 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

other  stockholders.  So,  also,  a  national  bank  may  be 
conceded  to  possess  the  incidental  power  of  accepting- 
in  o-ood  faith  stock  of  another  corporation  as  security 
for  a  previous  indebtedness.  It  is  clear,  however,  that 
a  national  bank  does  not  possess  the  power  to  deal  in 
stocks.  The  prohibition  is  implied  from  the  failure  to 
grant  the  powder." 

According-ly  it  was  held  in  that  case  that  a  provision 
of  the  laws  of  the  state  of  California  which  declared  a 
liability  on  the  part  of  stockholders  to  pay  the  debts  of 
a  saving-s  bank,  in  proportion  to  the  amount  of  stock 
held  by  each,  could  not  be  enforced  agfainst  a  national 
bank,  in  whose  name  stood  shares  of  stock  in  a  saving's 
bank  ;  it  being-  admitted  that  the  stock  of  the  saving's 
bank  had  not  been  taken  as  security,  and  that  the 
transaction  by  which  the  stock  was  placed  in  the  name 
of  the  national  bank  was  one  not  in  the  course  of  the 
business  of  banking,  for  which  the  bank  was  org-an- 
ized. 

It  is  sugg-ested  by  the  learned  circuit  judge,  in  his 
opinion  overruling  a  petition  for  a  rehearing  in  the  cir- 
cuit court  of  appeals,  that  the  question  considered  in 
the  case  of  Bank  v.  Kennedy  was  the  liability  of  a  na- 
tional bank  as  a  stockholder  in  a  state  savings  bank, 
while  the  question  in  the  present  case  is  as  to  its  lia- 
bility as  a  stockholder  in  another  national  bank,  and 
that,  therefore,  it  does  not  follow,  beyond  question, 
that  the  decision  in  the  former  case  is  decisive  of  the 
present  one.  50  U.  S.  App.  178,  27  C.  C.  A.  679,  and 
82  Fed.  301. 

No  reason  is  given  by  the  learned  judge  in  support 
of  the  solidity  of  such  a  distinction,  and  none  occurs  to 
us.  Indeed,  we  think  that  the  reasons  which  disqual- 
ify a  national  bank  from  investing  its  money  in  the 
stock  of  another  corporation  are  quite  as  obvious  when 
that  other  corporation  is  a  national  bank  as  in  the  case 
of  other  corporations.  The  investment  by  national 
banks  of  their  surplus  funds  in  other  national  banks, 
situated,  perhaps,  in  distant  states,  as  in  the  present 
case,  is  plainly  against  the  meaning  and  policy  of  the 


B  CAS]  ULTRA  VIRES  639 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

statutes  from  which  they  derive  their  powers,  and  evil 
consequences  would  be  certain  to  ensue  if  such  a  course 
of  conduct  were  countenanced  as  lawful.  Thus,  it  is 
enacted  in  section  5146  that  "every  director  must,  dur- 
ing- his  whole  term  of  service,  be  a  citizen  of  the  United 
States,  and  at  least  three-fourths  of  the  directors  must 
have  resided  in  the  state,  territory  or  district  in  which 
the  association  is  located  for  at  least  one  year  immedi- 
ately preceding-  their  election,  and  must  be  residents 
therein  during-  their  continuance  in  office." 

One  of  the  evident  purposes  of  this  enactment  is  to 
confine  the  manag-ement  of  each  bank  to  persons  who 
live  in  the  neig-hborhood,  and  who  may  for  that  reason 
be  supposed  to  know  the  trustworthiness  of  those  who 
are  to  be  appointed  officers  of  the  bank,  and  the  char- 
acter and  financial  ability  of  those  who  may  seek  to 
borrow  its  money.  But  if  the  funds  of  a  bank  in  New 
Hampshire,  instead  of  being-  retained  in  the  custody  and 
manag-ement  of  its  directors,  are  invested  in  the  stock 
of  a  bank  in  Indiana,  the  policy  of  this  wholesome  pro- 
vision of  the  statute  would  be  frustrated.  The  prop- 
erty of  the  local  stockholders,  so  far  as  thus  invested, 
would  not  be  manag-ed  by  directors  of  their  own  selec- 
tion, but  by  distant  and  unknown  persons.  Another 
evil  that  might  result,  if  larg-eand  wealthy  banks  were 
permitted  to  buy  and  hold  the  capital  stock  of  other 
banks,  would  be  that  in  that  way  the  banking-  capital 
of  a  community  mig-ht  be  concentrated  in  one  concern, 
and  business  men  be  deprived  of  the  advantag-es  that 
attend  competition  between  banks.  Such  accumulation 
of  capital  would  be  in  disreg-ard  of  the  policy  of  the 
national  banking  law,  as  seen  in  its  numerous  provisions 
regulating-  the  amount  of  the  capital  stock,  and  the 
methods  to  be  pursued  in  increasing-  or  reducing-  it. 
The  smaller  banks  in  such  a  case  would  be  in  fact, 
thoug-h  not  in  form,  branches  of  the  larger  one. 

Section  5201  may  also  be  referred  to  as  indicating-  the 
policy  of  this  leg-islation.     It  is  in  the  following-  terms  : 

"No  association  shall  make  any  loan  or  discount  on 
the  security  of  the  shares  of  its  own  capital  stock,  nor 


640  ULTRA  VIRES  [vOL  I 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

be  the  purchaser  or  holder  of  any  such  shares,  unless 
such  security  or  purchase  shall  be  necessary  to  prevent 
loss  upon  a  debt  previously  contracted  in  (^-ood  faith  ; 
and  stock  so  purchased  or  acquired  shall,  within  six 
months  from  the  time  of  its  purchase,  be  sold  or  dis- 
posed of  at  public  or  private  sale  ;  or,  in  default  thereof, 
a  receiver  may  be  appointed  to  close  up  the  business  of 
the  association. " 

This  provision  forbidding-  a  national  bank  to  own  and 
hold  shares  of  its  own  capital  stock  would,  in  effect,  be 
defeated,  if  one  national  bank  were  permitted  to  own 
and  hold  a  controllincr  interest  in  the  capital  stock  of 
another. 

Without  pursuing-  this  branch  of  the  subject  further, 
we  are  satisfied  to  express  our  conclusion,  upon  princi- 
ple and  authority,  that  the  plaintiff  in  error,  as  a 
national  banking-  association,  had  no  power 
" iltii" r  Sal  ^^'  authority  to  purchase  with  its  surplus 
«»n^-i'itra  fuuds,  as  an  investment,  and  hold  as  such, 
shares  of  stock  in  the  Indianapolis  National 
Bank  of  Indianapolis. 

The  remaining-  question  for  our  determination  is 
whether  the  First  National  Bank  of  Concord,  having-, 
as  a  matter  of  fact,  but  without  authority  of  law,  pur- 
chased and  held  as  an  investment  shares  of 
Kstopp"^!*'"'"  ^tock  in  the  Indianapolis  National  Bank,  can 
protect  itself  from  a  suit  by  the  receiver  of 
the  latter  broug-htto  enforce  the  stockholders'  liability 
arising-  under  an  assessment  by  the  comptroller  of  the 
currency  by  alleging- the  unlawfulness  of  its  own  action. 

This  question  has  been  so  recently  answered  by 
decisions  of  this  court  that  it  will  be  sufficient,  for  our 
present  purpose,  to  cite  those  decisions,  without  under- 
taking- to  fortify  the  reasoning-  and  conclusions  therein 
reached. 

In  Central  Transp.  Co.  t-.  Pullman's  Palace-Car  Co., 
139  U.  S.  24,  11  Sup.  Ct.  478,  after  an  examination  of 
the  authorities,  the  conclusion  was  thus  stated  by  Mr. 
Justice  Gray  : 

"It   was  arg-ued  on  behalf   of  the  plaintiff  that,  even 


B  CAS]  ULTRA  VIRES  641 

First  Nat.  Bank  of  Concord,  N.  H.  -'.  Hawkins 

if  the  contract  sued  on  was  void,  because  ult}-a  vires 
and  ao-ainst  public  policy,  yet  that,  having-  been  fully 
performed  on  the  part  of  the  plaintiff,  and  the  benefits 
of  it  received  by  the  defendant  for  the  period  covered 
by  the  declaration,  the  defendant  was  estopped  to  set 
up  the  invalidity  of  the  contract  as  a  defense  to  this 
action  to  recover  the  compensation  ag^reed  on  for  that 
period.  But  this  argument,  though  sustained  by 
decisions  in  some  of  the  states,  finds  no  support  in  the 
judg-ment  of  this  court.  "'  *  ^  The  view  which 
this  court  has  taken  of  the  question  presented  by  this 
branch  of  the  case,  and  the  only  view  which  appears 
to  us  consistent  with  legal  principles,  is  as  follows: 

"A  contract  of  a  corporation,  which  is  ultra  vires  in 
the  proper  sense, — that  is  to  say,  outside  the  object  of 
its  creation  as  defined  in  the  law  of  its  org-anization ,  and 
therefore  beyond  the  powers  conferred  upon  it  by  the 
leg-islature, — is  not  voidable  only,  but  wholly  void  and 
of  no  legal  effect.  The  objection  to  the  contract  is  not 
merely  that  the  corporation  oug"ht  not  to  have  made  it, 
but  that  it  could  not  make  it.  The  contract  cannot  be 
ratified  by  either  party,  because  it  could  not  be 
authorized  by  either.  No  performance  on  either  side 
can  give  the  unlawful  contract  anv  validity,  or  be  the 
foundation  of  any  right  of  action  upon  it. 

"When  a  corporation  is  acting-  within  the  general 
scope  of  the  powers  conferred  upon  it  by  the  leg-isla- 
ture,  the  corporation,  as  well  as  persons  contracting- 
with  it,  may  be  estopped  to  deny  that  it  has  complied 
with  the  legal  formalities  which  are  prerequisites  to  its. 
existence  or  to  its  action,  because  such  requisites 
might  in  fact  have  been  complied  with.  But,  when  the 
contract  is  beyond  the  powers  conferred  upon  it  by 
existing-  laws,  neither  the  corporation  nor  the  other 
party  to  the  contract  can  be  estopped,  by  assenting-  to 
it  or  by  acting-  upon  it,  to  show  that  it  was  prohibited 
by  those  laws. " 

The  principles  thus  asserted  were  directly  applied 
in  the  case  of  Bank  v.  Kennedy,  167  II.  S.  367,  17  Sup. 

B  CAS— 41 


642  ULTRA  VIRES  [VOh  I 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

Ct.  833,  where  the  question  and  the  answer  were  thus 
stated  by  Mr.  Justice  White: 

"The  transfer  of  the  stock  in  question  to  the  bank 
being:  unauthorized  by  law,  does  the  fact  that,  under 
some  circumstances,  the  bank  mig^ht  have  leg-ally 
acquired  stock  in  the  corporation,  estop  the  bank  from 
setting  up  the  illeg^ality  of  the  transaction? 

"Whatever  diverg^ence  of  opinion  may  arise  from 
'conflicting-  adjudications  in  some  of  the  state  courts,  in 
this  court  it  is  settled  in  favor  of  the  rig-ht  of  the 
corporation  to  plead  its  want  of  power;  that  is  to  say, 
to  assert  the  nullity  of  an  act  which  is  an  fd/ra  vires 
act.  The  cases  recog^nize  as  sound  doctrine  that  the 
powers  of  corporations  are  such  only  as  are  conferred 
upon  them  by  statute." 

There  is  then  quoted  a  passag-e  from  the  decision  of 
the  court  in  McCormickf.  Bank,  165  U.  S.  549,  17  Sup. 
Ct.  436,  as  follows: 

"The  doctrine  of  /d/ni  I'/rtvv,  by  which  a  contract 
made  by  a  corporation  beyond  the  scope  of  its  corporate 
powers  is  unlawful  and  void,  and  will  not  support  an 
action,  rests,  as  this  court  has  often  recog-nized  and 
affirmed,  upon  three  distinct  gfrounds  :  The  oblig-ation 
of  any  one  contracting-  with  a  corporation  to  take  notice 
of  the  leg-al  limits  of  its  powers,  the  interest  of  the 
stockholders  not  to  be  subject  to  risks  which  they 
have  never  undertaken,  and,  above  all,  the  interest  of 
the  public  that  the  corporation  shall  not  transcend  the 
powers  conferred  upon  it  by  law." 

The  conclusion  reached  was  thus  expressed  : 

"The  claim  that  the  bank,  in  consequence  of  the 
receipt  by  it  of  dividends  on  the  stock  of  the  saving's 
bank,  is  estopped  from  questioning-  its  ownership  and 
■consequent  liability,  is  but  a  reiteration  of  the  conten- 
tion that  the  acquiring-  of  stock  by  the  bank,  under 
the  circumstances  disclosed,  was  not  void,  but  merely 
voidable.  It  would  be  a  contradiction  in  terms  to 
assert  that  there  was  a  total  want  of  power  by  any  act 
to  assume  the  liability,  and  yet  to  say  that  by  a  par- 
ticular  act    the    liabilitv   resulted.      The    transaction, 


B  CAS]  ULTRA  VIRES  643 

First  Nat.  Bank  of  Concord,  N.  H.  v.  Hawkins 

beino'  absolutelv  void,  could  not  be    confirmed    or    rat- 
ified." 

In  the  present  case  it  is  souofht  to  escape  the  force  of 
these  decisions  by  the  contention  that  the  liability  of 
the  stockholder  in  a  national  bank  to  respond  to  an 
assessment  in  case  of  insolvency  is  not  contractual, 
but  statutory. 

Undoubtedly  the  obligfation  is  declared  b}'  the  statute 
to  attach  to  the  ownership  of  the  stock,  and  in  that 
sense  may  be  said  to  be  statutory.  But  as  the  owner- 
ship of  the  stock,  in  most  cases,  arises  from  the 
voluntary  act  of  the  stockholder,  he  must  be  reg-arded 
as  having-  ag-reed  or  contracted  to  be  subject  to  the 
oblig^ation. 

However,  whether,  in  the  case  of  persons  sui  juris, 
this  liabilit}'  is  to  be  reg^arded  as  a  contractual  incident 
to  the  ownership  of  the  stock,  or  as  a  statutory  obli- 
Ijfation,  does  not  seem  to  present  a  practical  question 
:n  the  present  case. 

If  the  previous  reasoning-  be  sound,  whereby  the 
conclusion  was  reached  that,  by  reason  of  the  limita- 
tions and  provisions  of  the  national  banking-  statutes, 
it  is  not  competent  for  an  association  org-anized  there- 
under to  take  upon  itself,  for  investment,  ownership 
•of  such  stock,  no  intention  can  be  reasonably  imputed 
to  cong-ress  to  subject  the  stockholders  and  creditors 
thereof,  for  whose  protection  those  limitations  and 
provisions  were  desig-ned,  to  the  same  liability  by 
reason  of  a  void  act  on  the  part  of  the  officers  of  the 
bank  as  would  have  resulted  from  a  lawful  act. 

It  is  arg-ued  on  behalf  of  the  receiver  that  the  object 
of  the  statute  was  to  afford  a  speedy  and  effective 
remedy  to  the  creditors  of  a  failed  bank,  and  that  this 
object  would  be  defeated  in  a  gfreat  many  cases  if  the 
comptroller  were  oblig-ed  to  inquire  into  the  validity 
of  all  the  contracts  by  which  the  reg-istered  share- 
holders acquired  their  respective  shares. 

The  force  of  this  objection  is  not  apparent.  It  is 
doubtless  within  the  scope  of  the  comptroller's  duty, 
when  informed  by  the  reports    of    the  bank    that  such 


644  ULTRA  VIRES  [vOL  I 

Bowen  r.  Needles  Nat.  Bank 

an  investment  has  been  made,  to  direct  that  it  be  at 
once  disposed  of ;  but  the  comptroller's  act  in  ordering- 
an  assessment,  while  conclusive  as  to  the  necessity 
for  making-  it,  involves  no  judg-ment  by  him  as  to  the 
judicial  rig-hts  of  parties  to  be  afifected.  While  he, 
of  course,  assumes  that  there  are  stockholders  to 
respond  to  his  order,  it  is  not  his  function  to  inquire 
or  determine  what,  if  any,  stockholders  are  exempted. 
The  judg-ment  of  the  circuit  court  of  appeals  is 
reversed.  The  judg-ment  of  the  circuit  court  is  also 
reversed,  and  the  cause  is  remanded  to  that  court  with 
directions  to  enter  a  judgement  in  conformity  with  this 
opinion. 

NOTE. 

Banks — Power  to  Deal  in  Stocks. — Dealing  in  stocks  is  not  within 
the  powers  of  a  bank.  Franklin  Bank  v.  Commercial  Bank,  36  Ohio 
St.  350,  38  Am.  Rep.  594;  Charlotte  First  Nat.  Bank  v.  Nat.  Exch. 
Bank,  92  U.  S.  122,  39  Md.  600  ;  Planters'  Bank  v.  Sharp,  6  How.  (U. 
S.)  322  ;  Bank  of  Commerce  v.  Hart,  37  Neb.  197,  40  Am.  St.  Rep. 
479;  Sackett's  Harbor  Bank  c/.  Lewis  County  Bank,  11  Barb.  (N.  Y.) 
213  ;  Nassau  Bank  v.  Jones,  95  N.  Y.  115,  47  Am.  Rep.  14 ;  Weckler  v. 
Hagerstown  First  Nat.  Bank,  42  Md.  582,  20  Am.  Rep.  95  ;  Franklin 
Co.  V.  Lewiston  Sav.  Inst.,  68  Me.  43,  28  Am.  Rep.  9. 

But  it  may  receive  stock  as  security  for,  or  in  payment  of  a  debt. 
Tracy  v.  Talmage,  14  N.  Y.  162,  67  Am.  Dec.  132;  Talmage  v.  Pell, 
7  N.  Y.  328;  Bank  Comm'rs  v.  St.  Lawrence  Bank,  7  N.  Y.  513. 


BOWEN 

V. 

Needles  Nat.  Bank  ct  al. 

{Circuit  Court  of  Appeals,  Ninth  Circuit,  May  75,  i8gg.) 

National  Banks — Contract  of  Guaranty — Ultra  Vires.*— It  is  ultnt 
vires  on  the  part  of  a  national  bank  to  guarantee  checks  drawn  on 
it  by  one  having  no  funds  deposited  with  the  bank. 

Corporations — Ultra  Viresf — Estoppel. — A  corporation  is  estopped 
to  contend  that  its  contract  was  ultra  vires  only  when  it  seeks  to 
retain  unjustly  the  fruits  of  the  contract  which  has  been  performed 
by  the  other  party. 

*See  note  at  end  of  case. 

fSee  notes,  1  Banking  Cas.  36  et  seq. 


II 


B  CAS]  ULTRA  VIRES  645 

Bowen  :■.  Needles  Nat.  Baak 

Right  to  Recover  on  Drafts  Executed  to  Plaintiff  under  Ultra  Vires 
Contract. — The  defendant  national  bank  guarantied  checks  drawn 
on  it  by  one  having-  no  funds  to  his  credit  in  such  bank  ;  and  trans- 
mitted to  plaintiff,  in  whose  favor  the  checks  were  drawn,  and  the 
contract  of  guaranty  made,  in  exchange  for  the  checks,  drafts 
drawn  by  it  upon  the  C.  bank,  which  had  no  funds  from  which  they 
could  be  paid;  and  defendant  provided  for  their  payment  by  draw- 
ing counter  drafts  at  the  same  time  upon  the  drawer  of  the  checks 
payable  at  the  C.  bank.  The  counter  drafts  were  not  paid,  and  the 
drafts  sent  in  exchange  for  the  checks  were  dishonored.  Held,  that 
the  last  mentioned  drafts,  having  been  executed  to  plaintiff  under 
the  void  contract  of  guaranty,  were  null  and  void  in  the  hands  of 
plaintiff. 

Error  by  plaintiff  to  the  Circuit  Court  of  the  United 
States    for  the    Southern    District    of  California.     Af- 

Abner  T.  Bowen  sued  the  Needles  National  Bank 
upon  four  causes  of  action,  the  first,  second,  and  third 
of  which  were  upon  bills  of  exchan«-e  for  $S,775,  $8,300, 
and  $5,364,  which  it  was  allegfed  in  the  „  „, . , 
complaint  were  drawn  b}^  the  defendant  at 
its  place  of  business  in  the  state  of  California  upon  the 
Chase  National  Bank,  of  New  York,  and  payable  to 
the  order  of  the  plaintiff  under  the  name  of  A.  T. 
Bowen  &  Co.,  which  bills  of  exchangfe  had  been  dis- 
honored by  the  drawee  :  and  for  a  fourth  cause  of 
action  the  plaintiff  alleg-ed  further  that  the  defendant 
was  indebted  to  him  upon  a  check  for  $3,500,  drawn  by 
Isaac  E.  Blake  upon  the  defendant  bank,  and  payable 
to  the  order  of  the  plaintiff.  Upon  the  issues  created 
by  the  answer  the  cause  was  tried  before  the  court 
w'ithout  a  jury,  and  the  court  found  for  the  defendant. 
87  Fed.  430.  No  bill  of  exceptions  is  presented  in  the 
record,  but  it  is  contended  by  the  plaintiff  in  error  that 
upon  the  finding's  of  fact  made  by  the  court  the  judo-- 
ment  should  have  been  for  the  plaintiff.  The  finding's 
are,  in  substance,  as  follows  : 

(1)  That  the  defendant  executed  and  delivered  to  the 
plaintiff  the  instruments  called  "bills  of  exchange"  in 
the  first,  second,  and  third  causes  of  action  for  the 
several  amounts  following",  to  wit,  September  10,  1894, 
$8,775  ;  September    12,    1894,    S8,300  ;  September  18, 


646  ULTRA  VIRES  [vOL  I 

Bowen  v.  Needles  Nat.  Bank 

1894,    $5,364 ;  and   that  said    bills  of    exchange    were 
drawn  upon  the  Chase  National  Bank,  of  New  York. 

(2)  That  neither  at  the  time  of  the  drawing  of  said 
drafts  nor  at  the  time  of  their  receipt  by  the  plaintiff 
were  there  funds  in  the  hands  of  the  drawee  to  pay  the 
same  ;  that  said  drafts  were  not  presented  to  the  drawee 
for  acceptance  or  payment. 

(3)  That  the  defendant  provided  for  the  payment  of 
said  drafts  by  drawing-  counter  drafts  at  the  same  time 
upon  Isaac  E.  Blake,  payable  at  said  Chase  National 
Bank  ;  that  said  counter  drafts  were  not  paid,  but 
from  the  prior  course  of  dealing  between  plaintiff  and 
defendant  and  the  said  Chase  National  Bank  and  the 
said  Blake  the  defendant  had  reason  to  believe,  and  did 
believe,  that  they  would  be  paid. 

(4)  That  the  said  drafts  or  bills  of  exchange  men- 
tioned in  the  first  finding  were  made  and  transmitted 
by  defendant  to  plaintiff  in  exchange  for  checks  drawn 
by  said  Blake  in  favor  of  plaintiff  and  upon  the  defend- 
ant bank  ;  that  said  Blake  had  no  funds  to  his  credit  in 
the  defendant  bank,  either  at  the  time  of  drawing  said 
checks  or  at  the  time  of  their  presentation  for  payment. 

(5)  That  the  plaintiff  is  a  citizen  and  resident  of  the 
state  of  New  York  doing  business  under  the  name  and 
style  of  A.  T.  Bowen  &  Co.,  and  the  defendant  is  a 
national  banking  corporation  organized  under  the  laws 
of  the  United  States. 

(6)  That  prior  to  April  25,  1894.  the  plaintiff  had 
advanced  mone3^s  to  the  said  Blake  upon  checks  drawn 
by  him  upon  the  defendant  bank,  and,  being  unwilling 
to  advance  further  sums  without  some  guarant}-  from 
the  defendant,  the  latter,  on  said  April  25,  1894, 
executed  and  delivered  to  the  plaintiff  the  following 
telegram  and  letter  : 

"To  A.  T.  Bowen  &  Co.,  71  Broadway.  New  York  : 
We  will  pay  checks  signed  'Isaac  K.  Blake,  by  W.  L. 
Beardsley.'  The  Needles  National  Bank." 

"A.  T.  Bowen  &  Co.,  New  York  City— Gentlemen: 
We  hereby  beg  leave  to  confirm  our  telegram  to  you  of 
even    date  :    'We    will    pay    checks    signed    "Isaac    E. 


B  CAS]  ULTRA  VIRES  647 

Bowen  i'.  Needles  Nat.  Bank 

Blake,  by  W.   L.   Beardsley,"  '    sig-ned   'Needles   Na^ 
tional  Bank.'  "Yours,   truly, 

W.  S.  Greenlee,  Cashier." 

That  on  Aug-ust  22,  1894,  the  said  bank  sent  the 
plaintiflF  the  following-  letter  : 

"A.  T.  Bowen  &  Co.,  New  York  City — Gentlemen: 
I  am  in  receipt  of  telegraphic  communication  from 
Chase  National  Bank  that  our  draft  No.  2,200,  for 
$7,500,  payable  to  the  order  of  Bowen  &  Co..  has  been 
refused  payment  until  advices  received  from  us  g-uar- 
autying-  the  amount  received.  I  immediately  guaran- 
tied the  amount  to  be  $7,500.00,  and  I  trust  I  have  put 
you  to  no  gfreat  inconvenience.  It  is  simply  a  clerical 
error,  which  happens  to  us  all  some  time  or  other,  and 
in  future  we  will  endeavor  to  be  more  careful.  I  have 
teleg-raphed  you  to  please  pardon  our  error,  and  that 
we  wish  you  to  still  continue  your  friendly  relations 
with  Mr.  Blake  and  Mr.  Beardsley,  and  that  we 
g-uaranty  absolutely  the  payment  of  Mr.  Blake's 
checks  as  heretofore.  I  am  truly  sorry  the  mistake 
has  occurred,  and  can  venture  the  assurance  that  it 
will  not  happen  again.  The  Keystone  mine  has  just 
uncovered  a  large  body  of  hig-h-g-rade  ore,  and,  if  the 
vein  continues  as  it  is  now  for  the  next  thirty  days,  it 
will  make  a  big  showing.  Again  asking-  your  pardon, 
I  remain,  with  best  wishes, 

"Very  trulv  yours,     W.  S.  Greenlee,  Cashier." 

(7)  That  on  the  4th,  5th,  10th,  and  11th  days  of  Sep- 
tember, 1894,  respectively,  upon  checks  drawn  bv  the 
said  Blake  upon  the  defendant  bank,  the  plaintiff  ad- 
vanced said  Blake  the  following-  sums  of  money  : 
$8,750,  $8,300,  S5,300,  $3,500,  and  transmitted  the 
checks  to  the  defendant  for  payment. 

(8)  That  in  exchange  for  the  checks  for  the  lirst 
three  sums  of  money  the  defendant  transmitted  to  the 
plaintiff  the  bills  of  exchang-e  mentioned  in  the  first 
finding-  above,  and  returned  to  the  plaintiff  the  fourth 
check,  for  S3, 500,  unpaid. 

(9)  That  at  the  time  of  drawing-  said  checks  and  at 
the  time  of   their  presentation   to  the  defendant  bank 


<>48  ULTRA  VIRES  [vOIv  I 

Bowen  v.  Needles  Nat.  Bank 

the  said  Blake  had  no  funds  whatever  on  deposit  with 
the  bank  with  which  to  pay  the  same,  nor  did  he  have 
any  funds  on  deposit  with  the  bank  at  the  time  when 
>^aid  letters  and  telegframs  were  sent,  or  at  an}'  time 
thereafter. 

(10)  That  the  bills  of  exchang-e  mentioned  in  the 
first  finding"  are  in  fact  checks,  and  that  defendant- 
bank  suffered  no  injury  by  the  failure  of  the  plaintiff 
to  present  the  same  to  the  said  Chase  National  Bank 
for  payment. 

(11)  That  at  the  time  of  the  drawing-  of  said  checks 
the  plaintiff  had  constructive  notice  that  the  said 
Blake  had  no  funds  on  deposit  with  the  defendant 
bank  to  meet  the  same,  and  knew  that  the  defendant 
■was  a  national  bank. 

Upon  these  findings  of  fact  the  court  found  as  con- 
clusions of  law  that  the  undertaking-  of  the  Needles 
National  Bank  to  guaranty  the  checks  of  Blake  was 
ultra  vires,  and  was  void  ;  and  that  the  bills  of  ex- 
chang-e, having-  been  made  and  executed  to  plaintiff 
under  such  void  contract  are  null  and  void  in  the  hands 
of  the  plaintiff,  and  that  no  cause  of  action  can  arise 
thereon. 

JoJdi  D.  Works  and  Bracfiicr  IV.  Lcr,  for  plaintiff  in 
error. 

Hoiry  C.  Dilloii  and  Ebcr  T.  Dunning,  for  defend- 
ants in  error. 

Before  (tilbert,  Ross,  and  Morrow,  Circuit 
Judg-es. 

Gilbert,  Circuit  Judge,  after  stating  the  facts  as 
above,  delivered  the  opinion  of  the  court. 

It  may  be  stated  in  g-eneral  that  no  banking  corpora- 
tion has  the  power  to  become  a  g-uarantor  of  the 
oblig-ation  of  another,  or  to  lend  its  credit  to  any, 
person  or  corporation,  unless  its  charter  or  g-overning^ 
statute  expressly  permits  it.  Farmers'  &  Mechanics' 
Bank  r.  Butchers'  &  Drovers'  Bank,  16  N.  Y.  125  ; 
Morford  v.  Bank,  26  Barb.  568  ;  Thomp.  Corp.  <^ 
d721.     Under   section    5136  of  the   Revised    Statutes, 


% 


B  CAS]  ULTRA  VIRES  649 

Bowen  v.  Needles  Nat.  Bank 

national  banking"  associations  are  ^iven  the  power  to 
"make  contracts"  and  "to  exercise  by  its  board  of 
directors,  or  duly  authorized  officers  or  ag'ents,  subject 
to  law,  all  such  incidental  powers  as  shall  be  necessary 
to  carry  on  the  business  of  bankinor  ;  by  discounting" 
and  neg-otiating"  promissory  notes,  drafts,  bills  of 
exchang"e,  and  other  evidences  of  debt ;  by  receiving" 
deposits  ;  by  buying"  and  selling"  exchang"e,  coin,  and 
bullion  ;  by  loaning-  money  on  personal  security  ;  and 
by  obtaining-,  issuing",  and  circulating"  notes  according" 
to  the  provisions  of  this  title."  There  is  in  these 
provisions  no  g"rant  of  p^wer  to  g"uaranty  the  debt  of 
another,  nor  can  such  g"uaranty  be  said  to  be  incidental 
to  the  business  of  banking".  It  has  been  so  held  in 
Selig-man  v.  Bank,  3  Hug"hes,  647,  Fed.  Cas.  No. 
12,642,  Norton  v.  Bank,  61  N.  H.  589,  and  Bank  r. 
Pirie,  27  C.  C.  A.  171,  82  Fed.  799.  An  apparent 
exception  is  recog"nized  in  the  case  of  the  discount  of 
promissor}-  notes  by  national  banks  which  may  be 
transferred  with  a  g"uaranty,  but  it  rests  upon  the 
ground  that  the  g"uaranty  of  such  paper  is  but  an 
ordinary  incident  to  its  transfer  in  the  course  of 
banking".  In  People's  Bank  v.  National  Bank,  101  U. 
S.  181,  the  court  said  :  "To  hand  over 
with  an  indorsement  and  guaranty  is  one  of  latimiHi  itjuiks- 

,  p-  r  •  ii         Contriift  «r(iaiir- 

the  commonest  modes  oi  transterring"  the  antyiitra  vires, 
securities  named."  There  can  be  no  doubt 
that  the  gfuaranty  in  the  present  case  was  nltra  vires. 
It  was  aside  and  apart  from  the  business  of  banking". 
The  case  is  not  that  of  an  officer  of  a  bank  exceeding" 
the  powers  deleg"ated  to  him,  but  it  is  a  case  where 
the  banking"  association  itself  has  exercised  powers  in 
excess  of  those  which  were  conferred  upon  it  by  statute. 
The  plaintiff,  equally  with  the  defendant  bank,  was 
bound  to  take  notice  of  the  statute.  He  had  notice 
also  that  there  were  no  funds  in  the  bank  to  meet  the 
checks,  and  he  knew  that  the  contract  was  one  of 
g-uaranty  pure  and  simple.  The  transaction  cannot 
be  deemed  a  certification  of  checks,  as  urg"ed  by  the 
plaintiff    in     error.     The    checks    were    not    certified. 


650  ULTRA  VIRES  [vOL  I 

Bowen  v.  Needles  Nat.  Bank 

They  did  not  bear  the  acknovvledg-raent  of  the  bank 
of  funds  in  its  possession  equal  in  amount  to  the  checks, 
and  available  for  their  payment.  The  certification  of 
checks  is  in  the  line  of  banking-  business,  and  is  not 
prohibited  to  national  banks.  The  only  prohibition  is 
that  the  bank  shall  not  certify  a  check  unless  the 
drawer  has  on  deposit  at  the  time  sufficient  monev  to 
meet  the  same.  The  penalty  for  violation  of  the  pro- 
hibition is  to  render  the  bank  liable  to  the  forfeiture 
of  its  charter,  and  to  have  its  affairs  wound  up.  Rev. 
St.  §  5208  ;  Thompson  r.  Bank,  146  U.  S.  240,  13 
Sup.  Ct.  66. 

But  the  present  case  is  complicated  by  the  fact  that 
the  plaintiff  in  error  relied  upon  the  g-uaranty,  and 
cashed  the  checks  on  the  streng-th  thereof.  There  is 
authority  for  holding-  that  under  such  circumstances 
the  bank  is  estopped  to  deny  its  liabilitv  on  the  g:uar- 
antv,  notwithstanding- that  the  contract  wns /(/hre  tvVtw. 
Thorn  p.  Corp.  ;$§  6017,  6025  ;  State  Board  of  Ag-ricul- 
ture  :•.  Citizens'  St.  Ry.  Co.,  47  Ind.  407  ;  Insurance 
Co.  V.  McClelland,  9  Colo.  11,  9  Pac.  771  ;  Oil  Creek 
&  A.  R.  R.  Co.  r.  Pennsylvania  Transp.  Co.,  83  Pa. 
St,  160.  "'The  principle,  proper!}^  understood  and 
applied,  extends  to  every  case  where  the  consideration 
of  the  contract  has  passed  to  the  corporation  from  the 
other  contracting-  party,  which  consideration  may, 
on  well-understood  principles,  consist  either  of  a 
benefit  to  the  corporation  or  of  a  prejudice  or  dis.ad- 
vantag-e  to  the  other  contracting-  party.  It  is  therefore 
not  strictly  necessary  to  the  proper  application  of  the 
principle  that  the  corporation  has  received  a  benefit 
from  the  contract,  but  it  is  sufficient  that  the  other 
party  has  acted  on  the  faith  of  it  to  his  disadvautag-e  ; 
as  where  he  has  expended  money  on  the  faith  of  it." 
Thomp.  Corp.  ;>  6017.  It  is  contended  that  thi- 
doctrine  finds  support  in  the  lang-uagfe  of  decisions  of 
the  supreme  court,  as  in  Hitchcock  :•.  Galveston,  9(> 
U.  S.  341,  351,  where  it  was  said  : 

"But  the  present  is  not  a  case  in  which  the  issue  of 
the   bonds  was   prohibited    by   any  statute.       At  most. 


'   B  CAS]  ULTRA  VIRES  651 

Bowen  z'.  Needles  Nat.  Bank 

the  issue  was  unauthorized.  At  most,  there  was  a 
defect  of  power.  The  promise  to  give  bonds  to  the 
plaintiffs  in  payment  of  what  they  undertook  to  do  was, 
therefore,  at  furthest,  only  ultra  vires  ;  and  in  such  a 
case,  though  specific  performance  of  an  engao-ement  to 
do  a  thing  transgressive  of  its  corporate  power  may 
not  be  enforced,  the  corporation  can  be  held  liable  on 
its  contract.  Having  received  benefits  at  the  expense 
of  the  other  contracting  party,  it  cannot  object  that  it 
was  not  empowered  to  perform  what  it  promised  ir. 
return." 

And  the  court  quoted  with  approval  from  the  opinion 
in  State  Board  of  Agriculture  v.  Citizens'  St.  Ry.  Co., 
47  Ind.  407,  the  following  words  : 

"Although  there  may  be  a  defect  of  power  in  the 
corporation  to  make  a  contract,  yet,  if  a  contract  made 
by  it  is  not  in  violation  of  its  charter,  or  of  any  statute 
prohibiting  it,  and  the  corporation  has,  b}'  its  promise, 
induced  a  party  relying  on  the  promise,  and  in  execu- 
tion of  the  contract,  to  expend  money,  and  perform  his 
part  thereof,  the  corporation  is  liable  on  the  contract." 

Also,  in  Raihvay  Co.  v.  McCarthy,  %  U.  S.  258,  267. 
where  the  court  said  : 

"The  doctrine  of  idh-a  vires,  when  invoked  for  or 
against  a  corporation,  should  not  be  allowed  to  prevail 
where  it  would  defeat  the  ends  of  justice,  or  work"  a 
legal  wrong." 

While  the  language  of  these  expressions  of  the  court 
may  be  said  to  be  sufHciently    broad    and    inclusive    U> 
justify  the    contention    of    the    plaintiff    in  error,    the 
court,  in  its    adjudications,    has    limited  the 
application  of  the  principle  to  cases  in  which   [;^{'f',"''iftj.*flr 
a  corporation  has,  by  the  plea  of  ultra  vires,    Ksto'piMi. 
sought   to    retain    unjustly  the    fruits    of  a 
contract  which  has   been  performed  bv  the  other  partv 
thereto.     In  all  such  cases  the    action    has   been  main- 
tained, not  upon  the  contract,  nor  to  enforce  its  terms, 
but    upon    an    implied    obligation     resting    upon    the 
defendant  resulting  from    the  fact  that  it  has  received 
money  or  property    which  it  ought  either    to  return  or 
make  compensation  for. 


652  ULTRA  VIRES  [vol  t 

Bowen  v.  Needles  Nat.  Bank 

In  Salt  Lake  City  v.  Holllster,  118  U.  S.  263,  6 
Sup.  Ct.  105*^,  it  was  said  : 

■'The  courts  have  gfone  a  long-  way  to  enable  parties 
who  had  parted  with  property  or  monev  on  the  faith  of 
such  contracts  to  obtain  justice  by  recovery  of  the 
property  or  the  money  specifically,  or  as  money  had 
and  received  to  plaintiff's  use." 

In  Louisiana  :'.  Wood,  102  U.  S.  29-1-,  where  a  city 
had  received  money  for  bonds  issued  by  it  without 
authoritv,  the  court  said  : 

"The  onh'  contract  actually  entered  into  is  the  one 
the  law  implies  from  what  was  done,  to  wit,  that  the 
city  would,  on  demand,  return  the  money  paid  to  it  by 
mistake." 

In  Parkersburg-  r.  Brown,  106  U.  S.  487,  1  Sup.  Ct. 
442,  in  a  similar  case,  the  court  said  : 

"The  enforcement  of  such  right  is  not  in  affirmance 
of  the  illegal  contract,  but  is  in  disaffirmance  of  it, 
and  seeks  to  prevent  the  city  from  retaining  the  benefit 
which  it  has  derived  from  the  unlawful  act." 

These  citations  sufficiently  illustrate  the  ground,  and 
the  onl}-  ground,  on  which  the  supreme  court  has  held 
that  corporations  may  be  liable  to  the  payment  of 
moue}"  on  account  of  contracts  which  the}*" 
M^iJrafisVxf'ru'  h^^^'^  entered  into  ullra  vires  of  their  charter, 
w  ft' Pjain'iff  and  which  have  been  performed  by  the  other 
vrrescnntrait.  party  to  the  coutract.  The  right  to  relief  in 
such  cases  rests  upon  the  fact  that  the  de- 
fendant corporation  has  obtained  an  advantage  which 
it  cannot  justl}'  retain.  The  general  doctrine  by 
which  the  present  case  may  be  ruled  is  thus  stated  in 
the  language  of  the  court  in  Central  Transp.  Co.  v. 
Pullm.an's  Palace-Car  Co.,  139  IT.  S.  24,  59,  11  Sup. 
Ct.  478.  488  : 

"A  contract  of  a  corporation,  which  is  ultra  vires  in 
the  proper  sense, — that  is  to  say,  outside  the  object  of 
its  creation  as  defined  in  the  law  of  its  organization, 
and  therefore  be3'ond  the  powers  conferred  upon  it  by 
the  legislature,— is  not  voidable  only,  but  wholly 
void,    and    of  no    legal    effect.       The    objection  to    the 


1 


B  CAS]  ULTRA  VIRES  653 

Boweu  V.  Needles  Nat.  Bank 

contract  is  not  merely  that  the  corporation  oug-ht  not  to 
have  made  it,  but  that  it  could  not  make  it.  The  con- 
tract cannot  be  ratified  by  either  party,  because  it, 
could  not  have  been  authorized  by  either.  No  per- 
formance on  either  side  can  g-ive  the  unlawful  contract 
any  validity,  or  be  the  foundation  of  any  right  of  actios 
upon  it." 

In  the  same  case  it  was  said  (139  U.  S.  54,  11  Sup. 
Ct.  486)  : 

"It  was  arg-ued  in  behalf  of  the  plaintiif  that,  even  if 
the  contract  sued  on  was  void,  because  ultra  vires  and 
against  public  policy,  yet  that,  having-  been  fully 
performed  on  the  part  of  the  plaintiff,  and  the  benefits, 
of  it  received  by  the  defendant,  for  the  period  covered 
by  the  declaration,  the  defendant  was  estopped  to  set 
up  the  invalidity  of  the  contract  as  a  defense  to  this 
action  to  recover  the  compensation  ag^reed  on  for  that 
period.  But  this  arg-uraent,  though  sustained  by 
decisions  in  some  of  the  states,  finds  no  support  in  the 
judgments  of  this  court." 

Later  decisions  of  the  supreme  court  have  emphasizec! 
the  views  expressed  in  the  foregoing  quotations.  Nav- 
igation Co.  V.  Hooper,  160  U.  S.  514,  16  Sup.  Ct.  379  : 
Union  Pac.  Ry.  Co.  v.  Chicao-o,  R.  I.  &  P.  Ry.  Co.. 
163  U.  S.  564,  16  Sup.  Ct.  1173  ;  McCormick  :•.  Bank. 
165  U.  S.  538.  17  Sup.  Ct.  433  ;  Bank  v.  Kennedy,  167 
U.  S.  362,  17  Sup.  Ct.  831. 

In  Union  Pac.  Ry.  Co.  v.  Chicago,  R.  I.  &  P.  Ry. 
Co.,  Mr.  Chief  Justice  Fuller  said  : 

"A  contract  made  by  a  corporation  beyond  the  scope 
of  its  powers,  express  or  implied,  on  a  proper  construc- 
tion of  its  charter,  cannot  be  enforced  or  rendered  en- 
forceable by  the  application  of  the  doctrine  of  es- 
toppel." 

In  McCormick  v.  Bank,  Mr.  Justice  Oray,  speak- 
ing- for  the  court,  said  : 

"The  doctrine  of  iillra  vires,  by  which  a  contract 
made  by  a  corporation  beyond  the  scope  of  its  corpo- 
rate powers  is  unlawful  and  void,  and  will  not  support 
an  action,  rests,   as  this  court  has  often  recognized  and 


t»54  ULTRA  VIRES  [vol  I 

Bowen  :■.  Needles  Nat.  Bank 

affirmed,  upon  three  distinct  o-rounds  :  The  obligfation 
of  any  one  contracting-  with  a  corporation  to  take  notice 
of  the  leg"al  limits  of  its  powers  ;  the  interest  of  the 
stockholders  not  to  be  subject  to  risks  which  they  have 
never  undertaken  ;  and,  above  all,  the  interest  of  the 
public  that  the  corporation  shall  not  transcend  the 
powers  conferred  upon  it  by  law." 

In  Bank  v.  Kennedy  it  was  said  : 

"It  would  be  a  contradiction  in  tferras  to  assert  that 
there  was  a  total  want  of  power  by  any  act  to  assume 
the  liabilit3^  and  yet  to  say  that  by  a  particular  act  the 
liability  resulted.  The  transaction,  being-  absolutely 
void,  could  not  be  confirmed  or  ratified." 

In  the  case  at  bar  the  defendant  bank  is  not  in  the 
position  of  having-  received  the  fruits  of  the  unlawful 
contract.  The  plaintiff's  money  was  paid,  not  to  the 
bank,  but  to  Blake.  It  is  not  shown  that  the  bank  re- 
ceived any  benefit  whatever  from  the  payment.  There 
is  no  g"round,  therefore,  upon  which  it  can  be  adjudg^ed 
that  the  bank  shall  make  restitution.  The  judg^ment 
will  be  affirmed. 

Ross,  Circuit  Judg-e  (dissenting).  I  ag-ree,  and  so 
held  in  the  case  of  Flannagan  z\  Bmk,  56  Fed.  959, 
that  a  national  bank  has  not  the  power  to  g-uaranty  the 
debt  or  oblig-ation  of  a  third  party  ;  but,  in  my  opinion, 
the  finding's  of  fact  of  the  court  below,  upon  which  the 
present  writ  of  error  must  be  determined,  d3  not  pre- 
sent an}'  such  case.  The  complaint  in  the  case  counts 
upon  four  separate  causes  of  action,  each  of  the  first 
three  of  which  is  upon  a  certain  draft  drawn  by  the  de- 
fendant Needles  Bmk  on  the  Chase  National  Bank,  of 
New  York,  in  favor  of  the  plaintiff,  doing  business 
under  the  name  of  Bdwcu  <fc  Co.,  and  delivered  to  the 
plaintiff,  according"  to  the  findings,  in  exchange  for  a 
check  of  Blake  drawn  on  the  defendant  bank,  and  dis- 
counted by  Bowen  &  Co.  The  checks  of  Blake  on  the 
defendant  Needles  Bank  in  favor  of  Bowen  &  Co.  were 
thus  honored  by  the  defendant  bank,  and  the  amounts 
thereof  necessarily  entered  upon  its  books  on  the  debit 
side  of  Blake's  account.  When  the  plaintiff  presented 
and  delivered   those  checks  of  Blake  to   the  defendant 


B  CAS]  ULTRA  VIRES  655 

Bowen  v.  Needles  Nat.  Bank 

Needles  Bank,  and  received  from  the  latter,  in  exchang-e 
therefor,  its  own  drafts  in  the  plaintiff's  favor  on  the 
Chase  National  Bank,  of  New  York,  the  plaintiff  man- 
ifestly parted  with  all  of  its  interest  in  those  checks  of 
Blake,  holding-  in  exchang-e  therefor  the  oblig-ations  of 
the  defendant  bank.  In  respect  to  the  first  three 
causes  of  action,  therefore,  I  am  unable  to  see  how,  in 
view  of  the  finding-s  of  fact,  it  can  be  properly  held 
that  the  action  is  upon  any  g-uaranty  of  the  debt  or  ob- 
lig-ation  of  Blake.  On  the  contrar}^  in  respect  to  each 
of  these  three  causes  of  action  the  defendant  bank 
honored  the  checks  of  Blake  drawn  upon  it,  and  in  ex- 
chang-e for  them  issued  its  own  obligations,  upon  which 
the  first  three  causes  of  action  rest.  There  is  nothing- 
in  the  finding-s  of  fact  to  the  effect  or  tending-  to  show 
— what  seems  to  be  assumed  in  the  prevailing-  opinion 
— that  Bowen  &  Co.  knew  that  the  drafts  drawn  in  its 
favor  by  the  defendant  bank,  and  issued  in  exchang-e 
for  Blake's  checks  upon  the  defendant  bank,  were 
only  to  be  paid  by  means  of  drafts  drawn  by  the  de- 
fendant bank  on  Blake  and  in  favor  of  the  Chase 
National  Bank,  of  New  York.  It  seems  to  me  that  the 
effect  of  the  decision  here  is  to  attach  a  condition  to  the 
drafts  of  the  defendant  bank  sued  upon,  which  is 
altogether  unauthorized  by  any  fact  made  to  appear  in 
the  finding-s  of  the  court  below.  According-  to  the 
complaint  as  it  appears  in  the  record,  the  fourth  cause 
of  action  is  upon  a  check  drawn  by  Blake  "upon  the 
plaintiff,  A.  T.  Bowen  &  Co.,"  which,  it  is  allegfed, 
the  defendant  bank  g-uarantied.  If  the  complaint 
in  respect  to  this  cause  of  action  be  so  taken 
and  considered,  it  is  plain  that  in  respect  to  it 
the  action  is  upon  a  g-uaranty  which  the  defend- 
ant bank  was  not  empowered  to  make.  But  the 
word  "upon"  was  probably  inserted  in  the  record  by 
mistake  in  place  of  the  words  "in  favor  of,"  since  the 
finding-s  of  fact  are  that  this  check  was  drawn  upon 
the  defendant  bank  and  in  favor  of  the  plaintiff,  Bowen 
&  Co.,  and  it  is  so  treated  in  the  opinion  of  the  court 
below,  as  also  in  the  opinion  of  this  court.  Thus  con- 
sidered, I    am    of    opinion,  in  view    of  the  finding-s    of 


656  ULTRA  VIRES  [vOL  'I 

Note 

fact  made  by  the  court  below,  that  in  respect  to  this 
cause  of  action,  also,  the  action  is  not  upon  any  g-uar- 
anty,  but  upon  the  direct  promise  of  the  defendant  bank 
to  pay  the  check  so  drawn  by  Blake  upon  it,  upon  the 
faith  of  which  promise  the  plaintiff  parted  with  his 
money.  What  I  have  said  is  based  upon  the  findingfs 
of  the  court  below,  which,  as  I  understand  it,  are  to 
control  the  judtrment  of  this  court.  In  the  opinion  of 
the  learned  judg-e  of  the  court  below,  however,  refer- 
ence is  made  to  certain  testimony  gfiven  in  the  trial 
court tendingf  to  show  that  the  plaintiff,  Bowen  &  Co., 
did  know  that  the  drafts  sued  upon  were  to  be  paid 
by  other  drafts  drawn  by  the  defendant  bank  upon 
Blake  in  favor  of  the  Chase  National  Bank,  of  New 
York,  and  w^ere  only  to  be  paid  in  the  event  of  Blake's 
paying-  those  drafts,  and  that,  in  truth,  all  of  the 
transactions  in  question  constituted  but  the  g"uaranty 
by  the  defendant  bank  of  Blake's  obligations,  of  which 
the  plaintiff,  Bowen  &  Co.,  had  actual  knowledge. 
The  testimony  thus  alluded  to  in  the  opinion  of  the 
trial  judge  finds  some  support  in  the  agreement 
executed  by  Blake  on  the  12th  of  September,  1894, 
which  is  set  out  in  the  findings  of  fact  that  were  made 
by  the  court  below.  The  evidence  in  the  case  may 
have  been  amply  sufficient  to  justify  findings  to  the 
effect  that  all  of  the  transactions  sued  upon  in  reality 
constituted  but  the  guarant}^  on  the  part  of  the  defend- 
ant bank  of  the  oblig-ations  of  Blake,  and  that  the 
plaintiff,  Bowen  &  Co.,  had  knowledge  thereof.  The 
difficulty  is  that  the  findings  do  not  show  this  state  of 
facts,  and  therefore  I  am  of  opinion  that  the  judgment 
should  be  reversed,  and  the  cause  remanded  for  a  new 
trial. 

NOTE. 

National    Banks— Accommodation    Indorsement — Ultra    Vires. — It 

is  not  within  the  powers  of  a  national  bank  to  become  an  accommo- 
dation indorser.  Noft\  1  Bankintr  Cas.  39;  Selig-man  v.  Char- 
lottesville Nat.  Bank,  3  Hughes  (U.  S  )  647;  Blair  v.  Mansfield 
First  Nat.  Bank,  2  Flipp.  (U.  S.)  Ill  ;  Houghton  v.  Elkhorn  First 
Nat.  Bank,  26  Wis.  663,  7  Am.  Rep.  107  ;  Flannagan  v.  California 
Nat.  Bank,  56  Fed.  Rep.  959  ;  Nat.  Bank  of  Commerce  v.  Kansas 
City  First  Nat.  Bank,  61  Fed.  Rep.  809, 


I 


B  CAS]  PREFERENCES  G5\ 

McDonald  v.  Chemical  Nat.  Bank 


McDonald 

V. 

Chemical  Nat.  Bank. 

(Supreme  Court  of  the  United  States,  May  22,  i8gg.) 

Correspondent  Banks — Refusal  to  Honor  Check — Whether  Act  of 
Insolvency. — For  a  number  of  years  there  had  been  mutual  and 
extensive  dealing's  between  the  defendant  bank  and  the  "C"  bank, 
in  which  each  was  acting-  for  the  other  as  correspondent  banks  for 
the  making  of  collections,  and  the  auditing  of  the  proceeds  thereof, 
and  transmitting-  accounts  of  the  same,  including  costs  of  protest 
and  other  expenses,  and  the  "C"  bank  also  kept  an  active  deposit 
account  with  the  defendant  bank,  and  settlements  on  the  basis  of 
such  accounts  were  made  at  periodic  times  during-  all  such  period, 
and  any  balance,  mutually  agreed  to  be  charged  or  credited,  was  at 
.such  times  credited  or  debited,  as  the  fact  might  be,  upon  the  books 
of  each  of  the  banks,  to  a  new  account,  and  the  prior  accounts 
thereby  and  in  that  manner  adjusted  and  settled.  Held,  that  a 
refusal  on  the  part  of  the  defendant  bank  to  pay  a  check  drawn  on 
it  by  the  "C"  bank  did  not  constitute  an  act  of  insolvency  on  the 
part  of  the  "C"  bank. 

Same — Preferences — Power  of  Insolvent  Bank  to  Make  Payments.* 
— It  cannot  be  said  that  all  payment  made  in  the  due  course  of  busi- 
ness by  a  bank  when  its  officers  know  its  condition  is  that  of  actual 
insolvency  are  made  in  contemplation  of  insolvencj^  or  with  a  view- 
to  prefer  one  creditor  to  another. 

Same — Mailing  Remittances — Subsequent  Suspension  —  Delivery. 
— The  "C"  bank,  in  the  usual  course  of  business  between  the  two 
banks,  at  a  time  when  it  was  larg-ely  indebted  to  the  defendant  bank 
on  account  of  such  business,  mailed  to  the  defendant  bank  certain 
checks  and  remittances,  which  did  not  reach  the  latter  until  the 
bank  examiner  had  taken  possession  of  the  assets  of  the  "C"  bank. 
Held,  that  such  mailing  was  a  delivery  to  the  defendant  bank, 
Avhose  property  in  such  checks  and  remittances  was  not  destroyed 
or  impaired  by  a  subsequent  act  of  insolvency  on  the  part  of  the 
"C"  bank. 

Appeal  by  complainant  from  the  United  States 
Circuit  Court  of  Appeals  for  the  Second  Circuit.  A J- 
firmcd. 

The  bill  alleged  that  the  Capital  National  Bank  on 
the  21st  day  of  January,  1893,  was  insolvent  and  stopped 

*See  note  at  end  of  case. 
B  CAS— 42 


658  PREFERENCES  [vOL  I 

McDonald  v.  Chemical  Nat.  Bank 

doing-  business,  and  that  on  the22dday  of  January,  1893, 
the  comptroller  of   the  currency  closed  said 

Case  stated.  i         i  i      -        i  •  r  -i.  i.  i 

bank  and  took  possession  or  its  assets  and 
affairs  ;  that  for  a  period  long-  prior  to  the  15th  day  of 
January,  1893,  the  said  bank  was  insoU^ent,  and  its  in- 
solvency was  known  to  all  its  officers  ;  that  ever  since 
the  2d  day  of  June,  1884,  there  had  been  mutual  and 
extensive  dealings  between  the  two  banks  above  named, 
in  which  each  had  acted  for  the  other,  as  correspondent 
banks  do,  for  the  making-  of  collections  and  the  crediting- 
of  the  proceeds  thereof  ;  that  the  Capital  National  Bank 
kept  an  active  deposit  account  with  the  defendant  ;  and 
that  settlements  on  the  basis  of  such  accounts  were 
made  at  periodic  times  during  all  said  period,  and  any 
balance  after  the  correction  of  errors,  mutually  ag-reed 
to  be  charg-ed  or  credited,  was  at  such  periods  credited 
or  debited,  as  the  fact  might  be,  upon  the  books  of  each 
of  said  banks  to  a  new  account,  and  the  prior  accounts 
thereby  and  in  that  manner  adjusted  and  settled. 

That  the  defendant  bank  had  refused  to  pay  or  honor 
the  drafts  drawn  upon  it  by  the  Capital  National  Bank 
presented  on  or  since  January  21,  1893  ;  that  since 
January  22,  1893,  the  defendant  bank  had  received  many 
and  larg-e  sums  of  money  belonging-  to,  and  for  the 
account  of,  the  Capital  National  Bank,  some  of  it  being- 
the  sums  of  S2,935.60,  $815.79,  and  $735,  from  the 
officers  of  the  Capital  National  Bmk,  and  the  rest  from 
the  third  parties  which  remitted  the  same  to  the 
defendant  for  account  of  the  Capital  National  Bank, 
and  that,  in  particular,  it  had  received  on  January  23, 
1893,  $5,000  from  the  Packers'  National  Bank,  and 
S2,000  from  the  Schuster  Hax  National  Bank,  and 
divers  other  sums  from  others,  on  that  day  and  since; 
that  the  defendant  had  refused  to  account  for  and  pay 
■over  to  the  complainant  the  said  collections.  Where- 
fore it  was  prayed  that  an  accounting-  be  had,  and  that 
the  defendant  be  ordered  to  pay  over  what  might  be 
thereby  found  due. 

The  defendant  bank  answered,  admitting- the  prelim- 
inary allegations  of  the  bill,  but  denying-  its  knowledg-e 


\ 


B  CAS]  PREFERENCES  659 

McDonald  z'.  Chemical  Nat.  Bank 

of  the  insolvency  of  the  Capital  National  Bank  on  or 
prior  to  January  21,  1893,  but  averring-  that  up  to  the 
23d  da}'  of  January,  1893,  it  was  informed  and  did 
believe  that  the  said  Capital  National  Bank  was  entirely 
solvent,  and  dealt  with  it  and  g-ave  it  credit  as  a  solvent 
bank. 

The  answer  denied  that  on  and  after  January  21, 
1893,  it  had  ceased  to  pa}'  and  refused  to  pay  all  drafts 
drawn  upon  the  defendant  by  the  Capital  National 
Bank,  but  admitted  that  on  the  23d  day  of  January, 
1893,  because  of  information  then  for  the  first  time 
received  of  the  strug-g-linof  condition  of  said  bank,  the 
defendant  bank  did  refuse  to  pay  the  drafts  of  the 
Capital  National  Bank,  which  was  then  indebted  to  the 
defendant  in  the  sum  of  at  least  $13,992.93  on  balance 
of  account,  besides  larg-e  amounts  of  neg-otiable  paper, 
indorsed  by  the  Capital  National  Bank,  then  held  by, 
and  previously  purchased  or  discounted  by,  the  defend- 
ant bank,  and  the  proceeds  of  which  had  been  credited 
to  the  account  of  the  Capital  National  Bank,  all  of  which 
transactions  were  averred  to  have  been  made  in  the 
usual  course  of  business  between  the  banks,  and  without 
any  knowled^r-e,  notice,  or  belief  on  the  part  of  the 
defendant  bank  that  the  Capital  National  Bank  was 
insolvent,  or  in  any  dang"er  of  becoming-  so. 

The  answer  denied  that  the  defendant  had  since 
January  22,  1893,  received  many  and  larg-e  sums  of 
money  beloutring-  to  and  for  account  of  the  Capital 
National  Bank,  butadmitted  that  since  January  21,  1893, 
it  had  received  certain  remittances  and  payments,  in  the 
form  of  checks  or  drafts,  for  account  of  the  Capital 
National  Bank,  all  which  it  had  placed  to  the  credit  of 
the  Capital  National  Bank,  which  had  left  the  Capital 
National  Bank  indebted  to  the  defendant  bank  in  alarg-e 
sum,  in  the  form  of  balance  of  account  and  neg-otiable 
paper  indorsed  to  the  defendant  by  the  Capital  National 
Bank  ;  and  the  answer  alleg-ed,  on  information  and 
belief,  that  said  remittances  and  payments  were  made 
by  the  Capital  National  Bank,  or  by  other  banks  and 
bankers    by    the    direction  and    order    of  said    Capital 


660  PREFERENCES  [vOL  I 

McDonald  v.  Chemical  Nart.  Bank 

National  Bank,  throug-h  the  United  States  mails,  and 
were  so  ordered,  made,  and  remitted  before  the  appoint- 
ment of  any  receiver  for  said  Capital  National  Bank, 
and  before  it  ceased  to  pay  its  oblig-ations  or  had 
suspended  its  usual  and  ordinary  banking-  business,  and 
that  said  remittances  by  said  Capital  National  Bank,  or 
by  ether  banks  and  bankers,  by  it  ordered  to  be  made 
to  the  defendant,  were  made  in  the  ordinary  and  accus- 
tomed course  of  business  between  the  defendant  and 
the  National  Capital  Bank,  and,  when  received  b}'  the 
defendant,  were  by  it  placed  to  the  credit  of  the  Capital 
National  Bank. 

The  answer  admitted  that  it  had  received  the  sums 
of  $2,935.60,  $815.79,  $735,  $5,000,  and  $2,000  on  the 
23d  day  of  January,  1893  ;  that  the  said  sums  of 
$2,935.60  and  $815.79  were  remitted  to  the  defendant 
on  or  about  the  19th  day  of  January,  1893,  and  the  said 
sum  of  $735  on  or  about  the  20th  day  of  January  1893, 
by  the  said  Capital  National  Bank,  which  on  said 
respective  days  deposited  and  delivered  the  same  in 
the  United  States  mail,  in  letters  addressed  to  the 
defendant,  in  the  usual  and  accustomed  course  of  busi- 
ness, and  before  said  Capital  National  Bank  had  sus- 
pended payment  or  stopped  business,  and  before  it 
was  taken  charg-e  of  by  the  receiver  ;  that  the  said 
siim  of  $5,000  was  remitted  to  the  defendant  on  or 
about  the  19th  day  of  January,  1893,  by  the  Packers' 
National  Bank,  and  the  said  sum  of  $2,000  was  remitted 
to  this  defendant  by  the  Schuster  National  Bank  on  or 
about  January  19,  1893,  by  being  by  said  banks, 
respectively,  deposited  in  the  United  States  mail,  in 
letters  addressed  to  the  defendant,  in  the  usual  course 
of  business,  and  before  the  Capital  National  Bank 
suspended  payment  or  stopped  business,  and  before 
it  was  taken  charg-e  of  by  the  receiver.  And  the 
answer  alleged,  on  information  and  belief,  that  said 
remittances  to  it  by  the  Packers'  National  Bank  and  the 
Schuster  National  Bank,  respectively,  were  made  in 
virtue  of  orders  and  directions  previously  g"iven  to 
them  by  said  Capital  National  Bank,  on  or  about  Janu- 


B  CAS]  PREFERENCES  661 

McDonald  z'.  Chemical  Nat.  Bank 

ary  18,  1893,  in  the  usual  course  of  business  between 
them  and  the  Capital  National  Bank. 

A  replication  was  filed  and  evidence  put  in  on  behalf 
of  the  respective  parties.  It  was  stipulated  that  the 
Capital  National  Bank  continued  to  transact  the  usual 
and  ordinary  business  of  a  national  bank  up  to  the 
close  of  banking-  hours  on  January  21,  1893  ;  that  the 
ordinary  mail  time  between  Lincoln,  Neb.,  and  the 
cit}"  of  New  York  is  50  hours  ;  between  Lincoln  and 
South  Omaha,  Neb.,  where  the  Packers'  National 
Bank  is  situated,  is  2  hours  and  40  minutes  ;  between 
South  Omaha  and  New  York  City,  48  hours  and  37 
minutes  ;  between  Lincoln  and  St.  Joseph,  Mo.,  where 
the  Schuster  Hax  National  Bank  is  located,  is  7  hours 
and  28  minutes  ;  and  between  St.  Joseph  and  New 
York  City  is  50  hours  and  55  minutes.  The  com- 
plainant put  in  evidence  an  account  or  statement, 
furnished  by  the  defendant  to  the  complainant,  showingf 
the  transactions  between  the  Capital  National  Bank 
and  the  Chemical  National  Bank  from  January  3,  1893, 
to  January  27,  1893,  showing-  a  balance  on  the  last  day 
of  $13,317.94,  against  the  Capital  National  Bank  and 
in  favor  of  the  Chemical  National  Bank. 

The  complainant  likewise  put  in  evidence  a  draft 
drawn  on  January  13,  1893,  by  the  Capital  National 
Bank  on  the  Chemical  National  Bank  for  $5,000,  to  the 
order  of  T.  M.  Barlow,  cashier,  and  a  protest  of  said 
draft  for  nonpayment  on  January  17,  1893  ;  also,  a 
statement  of  various  drafts  drawn  b}^  the  Capital  Na- 
tional Bank  on  the  Chemical  National  Bank,  at  different 
times,  in  favor  of  third  parties,  and  protested  for 
nonpayment  on  and  after  January  24,  1893.  These 
protested  drafts  amounted  to  $44,264.66. 

The  defendant  called  as  a  witness  its  cashier,  Wil- 
liam I.  Ouinlan,  who  testified  that  when  the  draft  for 
$5,000  to  the  order  of  T.  M.  Barlow,  cashier,  was  pre- 
sented and  payment  refused,  the  Capital  National  Bank 
had  no  deposits  or  funds  on  deposit  with  the  Chemical 
National  Bank,  out  of  which  such  draft  could  be  paid, 
and  that  the  account  of  the  Capital  National  Bank  had 


662  PREFERENCES  [vOL  I 

McDonald  z'.  Chemical  Nat.  Bank 

been  overdrawn  for  some  time.  The  defendant  put 
in  evidence  a  letter  dated  January  19,  1893,  from  the 
Packers'  National  Bank,  inclosing-  its  draft  for  $5,000 
on  the  Fourth  National  Bank  of  New  York,  to  be 
placed  to  the  credit  of  the  Capital  National  Bank,  and 
letter,  dated  January  18,  1893,  from  the  Schuster  Hax 
National  Bank,  inclosing-  its  draft  for  $2,000  on  the 
Chemical  National  Bank,  to  the  credit  of  the  account 
of  the  Capital  National  Bank. 

Further  evidence  was  put  in  by  the  respective 
parties,  which  it  does  not  seem  necessary  to  state. 

On  March  16,  1897,  after  argfument,  upon  the  plead- 
ing's and  proofs,  the  circuit  court  dismissed  the  bill 
of  complaint,  with  costs.  An  appeal  was  taken  from 
this  decree  to  the  circuit  court  of  appeals  for  the  Second 
circuit,  and  on  January  31,  1898,  that  court  affirmed 
the  decree  of  the  circuit  court.  28  C.  C.  A.  548,  84 
Fed.  874.  And  from  the  decree  of  the  circuit  court 
of  appeals  an  appeal  was  taken  and  allowed  to  this 
court. 

Edzvard  Winslo-^v  Paige,  for  appellant. 
Geo.  H.  Teaman,  for  appellee. 

Mr.  Justice  Shiras,  after  stating-  the  facts  in  the 
foreg-oing-  lang-uag-e,  delivered  the  opinion  of  the  court. 

The  Capital  National  Bank  of  Lincoln,  Neb.,  was 
org-anized  as  a  banking-  association  under  the  laws  of 
the  United  States  in  June,  1884,  and  continued  to  trans- 
act the  usual  ami  ordinar}^  business  of  a  national  bank 
up  to  the  close  of  banking-  hours  on  January  21,  1893. 
On  January  22,  1893,  a  bank  examiner  took  possession, 
and  thereafter,  about  Februar}'  6,  1893,  a  receiver  was 
duly  appointed. 

The  Chemical  National  Bank  of  New  York,  a  bank- 
ing- association  org-anized  under  the  laws  of  the  United 
States,  and  doing-  business  as  such  in  the  city  of  New- 
York,  carried  on  for  some  years  a  larg-e  business  inter- 
course with  the  Capital  National  Bank.  The  receiver 
filed  the  bill  in  this  case,  seeking-  to  make  the  Chem- 
ical National  Batik  account  for  certain  moneys  received 
by  it  after  the  suspension  of  the  Capital  National  Bank. 


1 


B  CAS]  PREFERENCES  663 

McDonald  v.  Chemical  Nat.  Bank 

The  nature  of  the  intercourse  between  the  two 
banks    was   thus  described  in  a  parag-raph  of  the  bill  : 

"Kver  since  the  2d  day  of  June,  1884,  there  have 
been  mutual  and  extensive  dealiuo-s  between  the  two 
banking-  associations  above  named,  in  which  each  was 
acting-  for  the  other,  as  correspondent  banks  do,  for 
the  making-  of  collections,  and  the  crediting-  of  the 
proceeds  thereof,  and  transmitting-  accounts  of  the 
same,  including-  costs  of  protest  and  other  expenses, 
and  the  Capital  National  Bank  also  kept  an  active  de- 
posit account  with  the  defendant,  and  that  settlements 
on  the  basis  of  such  accounts  were  made  at  periodic 
times  during-  all  said  period,  and  any  balance,  after  the 
correction  of  errors,  mutuallv  ag-reed  to  be  charg-ed  or 
credited,  was  at  such  periods  credited  or  debited,  as 
the  fact  mig-ht  be,  upon  the  books  of  each  of  said  banks, 
to  a  new  account,  and  the  prior  accounts  thereby  and 
in  that  manner  adjusted  and  settled." 

The  complainant's  case  depends,  under  the  evidence, 
on  an  application  of  the  provisions  of  section  5242  of 
the  Revised  Statutes,  which  is  as  follows  : 

"All  transfers  of  the  notes,  bonds,  bills  of  exchange 
or  other  evidences  of  debt,  owing-  to  any  national  bank- 
ing- association,  or  of  deposits  to  its  credit:  all  assign- 
ments of  raortg-ag-es,  sureties  on  real  estate,  or  of  judg-- 
ments  or  decrees  in  its  favor  ;  all  deposits  of  money, 
bullion  or  other  valuable  thing  for  its  use  or  for  the 
use  of  anv  of  its  shareholders  or  creditors  ;  and  all 
payments  of  money  to  either,  made  after  the  commis- 
sion of  an  act  of  insolvency  or  in  contemplation  thereof, 
made  with  a  view  to  prevent  the  application  of  its 
assets  in  the  manner  prescribed  by  this  chapter,  or 
w'ith  a  view  to  the  preference  of  one  creditor  to  another, 
except  in  payment  of  its  circulating-  notes,  shall  be 
utterly  null  and  void  ;  and  no  attachment,  injunction 
or  execution  shall  be  issued  against  such  association  or 
its  property  before  final  judgment  in  any  suit,  action 
or  proceeding  in  any  state,  county  or  municipal  court."* 

It  appears  in  evidence  that  on  January  18,  1893,  the 
account  of  the  Capital  National  Bank  with  the  defend- 


664 


PREFERENCES 

McDonald  i\  Chemical  Nat.  Bank 


[vol  I 


ant  bank  was  overdrawn  to  the  amount  of  $84,486.19, 
and  that,  b}'  sundry  remittances  made,  the  amount 
overdrawn  stood,  on  January  21,  1893,  at  the  sum  of 
$25,515.32.  It  further  appears  that  on  January  18, 
1893,  the  Schuster  Hax  National  Bank  of  St.  Joseph, 
Mo.,  remitted  by  mail  $2,000  to  the  defendant  for  the 
credit  of  the  Capital  National  Bank  ;  on  January  19th 
the  Packers'  National  Bank  of  South  Omaha,  Neb., 
remitted  by  mail  to  the  defendant  $5,000  for  the  credit 
and  advice  of  the  Capital  National  Bank  ;  on  January 
20th  the  Capital  National  Bank  remitted  to  the  defend- 
ant b}'  mail  a  packag-e  of  small  items  amouutino-  to 
$735,  and  a  packa<J-e  amounting-  to  $2,935.60,  and  on  the 
21st  a  similar  package  amounting-  to  $833.64.  On 
Januar}'  23d  the  defendant  received  the  remittance  of 
$2,000  of  the  18th,  and  of  $5,000,  $815.79,  and  $2,- 
935.60  of  the  19th,  and  of  the  remittance  of  $735  of  the 
20th  ;  and  on  the  24th  of  January  it  received  the  re- 
mittance of  $833.04.  With  these  remittances  credited, 
the  account  of  the  Capital  National  Bank  stood,  on 
January  24,  1893,  overdrawn  $13,317.94. 

The  claim  of  the  complainant  is  to  recover  all  the 
sums  received  by  the  defendant  bank  on  January  23d 
and  24th,  as  having-  been  transferred  and  received  con- 
trary to  the  statute.  The  bill  of  complaint  contains 
no  allegation  of  any  act  of  insolvency  prior  to  January 
22,  1893,  or  of  any  payment  made  in  contemplation  of 
insolvency,  or  of  any  payment  made  with  a  view  to 
prevent  the  application  of  the  bank's  assets  in  the 
manner  prescribed  in  the  statute,  or  of  any  payment 
made  with  a  view  to  the  preference  of  one  creditor  to 
another. 

It  is  true  that  in  the  course  of   the  trial  it  appeared 

that    on  the   17th  day  of   January,  1893,    the  Chemical 

National  Bank  refused  to  pay  a  check  for  $5,000  drawn 

on    it  by  the   Capital  National    Bank  to    the 

order  of  T.  M.   Barlow,  and  it  is  contended 

that  such  refusal  by  the  Chemical  National 

Bank  is  to  be  reg-arded  as  an  act  of  insolvency 

on  the  part  of  the  Capital    National    Bank. 

It  is  difficult   to  see  any  foundation    for  this  contentioH 


orrcspoinli'iit 
Hanks— Refusal  t« 
llnnnrllierk    - 
WhethtT  Act  nf 
litsolvenrr. 


B  CAS]  PREFERENCES  665 

McDonald  v.  Chemical  Nat.  Bank 

in  the  mere  fact  that  the  Chemical  National  Bank 
refused  on  January  17th  to  make  further  advances  on 
the  credit  of  the  Capital  National  Bank.  Such  refusal 
may  have  been  occasioned  by  a  shortag-e  of  money  on 
the  part  of  the  bank  in  Neu-  York,  and  because  its  funds 
on  that  day  were  needed  for  other  purposes,  and  was 
entirely  consistent  with  the  absolute  solvency  of  the 
Nebraska  bank. 

Nor  can  a  finding-  that  the  payments  and  remittances 
made  to  the  Chemical  National  Bank  on  the  dates 
above  mentioned  were  made  in  contemplation  of  insol- 
vency, and  with  an  intent  to  prefer  that  bank,  be  based 
on  the  mere  alleg"ation  that  the  Capital  National  Bank 
was  actually  insolvent,  and  that  its  insol- 
venc}^  must  have  been  known  to  its  officers.  ^^i'Joi^r'^oMiisoi- 
It  is  matter  of  common  knowledg-e  that  p^'J^n,''*"!'/'' ''"''" 
banks  and  other  corporations  continue,  in 
many  instances,  to  do  their  regular  and  ordinary  busi- 
ness for  long-  periods,  thoug-h  in  a  condition  of  actual 
insolvency,  as  disclosed  by  subsequent  events.  It  can- 
not surely  be  said  that  all  payments  made  in  the  due 
course  of  business  in  such  cases  are  to  be  deemed  to  be 
made  in  contemplation  of  insolvenc}',  or  with  a  view  to 
prefer  one  creditor  to  another.  There  is  often  the 
hope  that,  if  only  the  credit  of  the  bank  can  be  kept  up 
by  continuing-  its  ordinary  business  and  by  avoiding- 
any  act  of  insolvency,  affairs  may  take  a  favorable 
turn,  and  thus  suspension  of  pa\'ments  and  of  business 
be  avoided. 

In  the  present  instance  there  was  not  only  no  alleg-a- 
tion  of  payments  made  in  contemplation  of  insolvency, 
or  with  a  view  to  prefer  the  Chemical  National  Bank, 
but  there  was  no  evidence  that  up  to  the  closing-  hours 
of  January  21,  1893,  the  Capital  National  Bank  had 
failed  to  pay  any  depositor  on  demand,  or  had  not  met 
at  maturity  all  its  obligations.  And  the  evidence  fails 
to  disclose  any  intention  or  expectation  on  the  part  of 
its  officers  to  presently  suspend  business.  It  rather 
shows  that,  up  to  the  last,  the  operations  of  the  bank, 
and  its  transactions  with  the  Chemical  National  Bank, 


666  PREFERENCES  [vOL  I 

McDonald  z'.  Chemical  Nat.  Bank 

were  conducted  in  the  usual  manner.  It  may  be  that 
those  of  its  officers  who  knew  its  real  condition  must 
have  dreaded  an  ultimate  catastrophe,  but  there  is 
nothing-  to  justify  the  inference  that  the  particular 
payments  in  question  were  made  in  contemplation  of 
insolvency,  or  with  a  view  to  prefer  the  defendant 
bank.  The  Chemical  National  Bank  was  no  more  pre- 
ferred by  these  remittances  several  days  before  sus- 
pension than  were  the  depositors  whose  checks  were 
paid  an  hour  before  the  doors  were  closed.  Indeed,  it 
is  stipulated  that  the  Capital  National  Bank  continued 
to  transact  its  usual  and  ordinary  business  up  to  the 
close  of  bankinof  hours  on  January  21,  1893. 

The  view  of  the  courts  below  was  that  these  pay- 
ments and  remittances  were  not  made  in  contemplation 
of  insolvency,  or  with  a  view  to  prefer  the  Chemical 
National  Bank,  and  our  examination  of  the  evidence 
has  led  us  to  the  same  conclusion. 

It  remains  to  consider  another  proposition  very 
strongly  pressed  on  behalf  of  the  appellant,  and  that 
is  that  the  monevs  and  checks  remitted  to 
&""iMam'!N'''snh-  ^hc  defendant  bank  which  did  not  reach  it 
sHiiient  si:siHii-  till  after  the  bank  examiner  had  taken  pos- 
session  could  not,  in  law,  become  the  prop- 
erty of  the  defendant  bank,  but  remained  part  of  the 
assets  of  the  insolvent  bank,  for  which  the  defendant 
must  account  to  the  receiver,  in  order  that  the  proceeds 
may  be  ratably  divided  among-  the  creditors. 

It  is  said  that  the  taking-  possession  of  the  bank  b}' 
the  comptroller  of  the  currency  is  a  distinct  declaration 
of  insolvency,  and  cases  are  cited  in  which  it  has  been 
said  by  this  court  that  the  business  of  the  bank  must 
stop'when  insolvenc}''  is  declared  (White  i'.  Knox,  111 
U.S.  784,  4  Sup.  Ct.  686),  and  that  the  state  of  case 
where  the  claim  soug-ht  to  be  offset  is  acquired  after 
the  act  of  insolvency  cannot  sustain  such  a  transfer, 
because  the  rights  of  the  parties  become  fixed  as  of 
that  time  (Scott  v.  Armstrong-,  146  U.  S.  499,  13  Sup. 
Ct.  148). 

The  law  is  doubtless  as  thus  stated,  but  does  it  ap- 
ply to  the  present  case? 


B  CAS]  PREFERENCES  667 

McDonald  Z'.  Chemical  Nat.  Bank 

It  is  conceded  in  his  brief  by  the  learned  counsel  of 
the  appellee  that  if  the  drafts  and  checks  had  been  de- 
posited in  the  mail  pursuant  to  any  ag-reement,  or  even 
if  the  defendant  had  known  anything-  about  them,  they 
might  have  been  reg-arded  as  the  property  of  the 
Chemical  National  Bank  as  of  the  date  of  mailing-. 
But  he  urg-es  that  this  was  only  the  case  of  a  bank 
sending-  the  checks  of  other  parties  to  its  agents  for 
collection  and  deposit ;  that  it  could  have  sent  them  to 
any  other  ag-ent,  had  it  pleased  ;  and  that,  after  it  had 
once  put  them  in  the  mail,  it  could  have  taken  them 
out  ag-ain.  And  queries  are  put  as  to  which  bank 
would  have  suffered  the  loss  if  the  checks  had  been 
destroyed  in  transit  or  if  they  had  proved  to  be  worth- 
less. 

But  here  we  have  the  case,  not  of  a  casual  remittance. 
but  of  remittances  sent  from  time  to  time,  and  fre- 
quently, during-  a  long-  course  of  business  between  tht^ 
banks  concerned.  There  may  have  been  no  special 
ag-reement  as  to  each  particular  remittance,  but  there 
was  plainly  a  g-eneral  ag-reement  that  remittances  were 
to  be  made  by  mail,  and  that  their  proceeds  were  not  to 
be  returned  to  the  Capital  National  Bank,  but  were  to 
be  credited  to  its  constantly  overdrawn  account. 

Whose  the  loss  raig-ht  be,  if  the  packag-es  were 
destroyed  hi  transitu,  or  if  the  checks  proved  uncol- 
lectible, are  not  questions  that  concern  us  now.  It  is 
sufficient  for  present  purposes  to  say  that  the  inference 
is  warranted  that  it  was  understood  between  the 
parties  that  these  remittances  were  to  be  made  throug-h 
the  mails,  and  that  they  were  in  the  nature  of  pay- 
ments on  g-eneral  account. 

Nor  can  it  be  conceded  that,  except  on  some  extraor- 
dinary occasion,  and  on  evidence  satisfactory  to  the 
post-office  authorities,  a  letter  once  mailed  can  be  with- 
drawn by  the  party  who  mailed  it.  When  letters  are 
placed  in  a  post  office,  they  are  within  the  leg-al  cus- 
tody of  the  officers  of  the  g-overnment,  and  it  is  the 
duty  of  postmasters  to  deliver  them  to  the  persons  tfi> 
whom  thev  are  addressed.     U.    S.    r.    Pond,    2    Curt. 


668  PREFERENCES  [vOL  I 

McDonald  v.  Chemical  Nat.  Bank 

265.  Fed.  Cas.  No.  16,067  ;  Buck  r.  Chapin,  99  Mass. 
594;  Morg-an  r.  Richardson,  13  Allen,  410;  Taylor  r. 
Insurance  Co.,  9  How.  390. 

However,  it  is  not  pretended  in  this  case  that  the 
checks  were  destroyed  or  proved  worthless,  or  that  the 
Capital  National  Bank  either  withdrew  the  remittances 
or  countermanded  their  delivery. 

We  think  that  the  courts  below  well  held  that,  under 
the  facts  of  this  case,  the  mailing-  of  these  checks  and 
remittances  was  a  delivery  to  the  Chemical  National 
Bank,  whose  property  therein  was  not  destroyed  or 
impaired  by  a  subsequent  act  of  bankruptc3^ 

It  is  finall}'  viro-ed  that,  however  it  may  be  as  to  the 
remittances  received  throug-h  the  mail  on  January  23, 
1893,  yet  that  the  payment  or  remittance  of  S833.64. 
received  on  Januar}^  24th,  was  a  payment  made  after 
the  declaration  of  insolvenc3%  and  must  therefore  be 
accounted  for  by  the  defendant  bank. 

It  is  claimed  that  there  was  no  evidence  that  this 
remittance  came  by  mail,  and  that  all  there  is  in  the 
case  is  the  admission  b}'  the  defendant  bank  of  its  receipt 
':>f  that  sum  on  January  24,  1893. 

But  it  is  to  be  observed  that  no  mention  is  made  in 
the  bill  of  this  particular  item,  thoutyh  the  other  litig-ated 
items  are  specified,  and  to  the  latter  only  was  the  proof 
directed.  In  the  absence  of  evidence  as  to  an}'  other 
method  of  transmission,  and  in  view  of  the  fact  that  all 
the  other  payments  were  made  by  mail,  it  would  seem 
to  be  a  reasonable  inference  that  such  was  the  case  of 
this  remittance.  The  record  discloses  that  the  cashier 
©f  the  Chemical  National  Bank  testified  in  the  case. 
He  had  furnished  the  complainant  with  a  statement  of 
the  accounts  between  the  banks  from  January  3,  1893. 
to  January  24,  1893,  including-  this  particular  item,  but 
ke  was  not  cross-examined  as  to  this  item.  Had  he 
been  so  examined,  a  more  particular  statement  in  respect 
to  it  would  have  been,  no  doubt,  elicited.  It  was 
apparently  assumed  that  the  history  of  this  payment 
did  not  differ    from  that  of  the    other^-,    and  the  effort 


B  CAS]  PREFERENCES  669 

Note 

now  made  in    respect  to  it  seems  to  be  in  the  nature  of 
an  afterthoug-ht,  too  late  to  permit  an  explanation. 

Upon  the  whole  case,  we  are  of  the  opinion  that  the 
decree  of  the  court  of  appeals  was  correct,  and  its 
decree  is  accordingfly  affirmed. 

Mr.  Justice  White,  Mr.  Justice  Peckham,  and 
Mr.  Justice  McKenna  dissented. 


NOTE. 

Banks — Insolvency — Preferences — Intention. — In  Stoiie  z'.  Jenisoa 
(Mich.),  8  Am.  &  Eng-.  Corp.  Cas.,  N.  S.,  750,  MooKS,  J.,  delivering- 
the  opinion  of  the  court,  said  :  "In  the  case  of  Ha3'es  v.  Beardsley. 
136  N.  Y.  299.  32  N.  E.  855,  which  was  a  case  of  payment  of  certifi- 
cates of  deposit  after  the  bank  became  insolvent,  and  after  the 
cashier  had  known  for  months  that  it  was  insolvent,  this  languag'e 
is  used  :  'There  was  no  satisfactory  evidence  that  these  payments 
were  made  by  the  bank  to  prevent  the  application  of  its  assets  in 
the  manner  prescribed  in  the  national  banking  act,  or  with  a  view 
to  a  preference  of  the  defendant  over  the  other  creditors  of  the 
bank.  *  *  *  There  does  not  appear  from  the  facts  found  to  be 
any  better  ground  for  claiming  that  these  payments  made  to  the 
defendant  were  void  than  there  is  for  making  the  same  claim  in 
reference  to  the  numerous  payments  made  in  the  regular  course  of 
business  b3'  this  bank  to  its  customers  during  many  months  prior  t® 
the  closing  of  its  doors.  In  order  to  uphold  a  recovery  in  an  action 
like  this,  there  should  be  some  satisfactory  evidence  that  the  cashier 
or  other  officer  actually  paid  the  money  of  the  bank  in  contempla- 
tion of  insolvency  for  the  purpose  of  giving  a  preference  to  the 
paj'ee,  and  with  a  view  to  prevent  the  application  of  the  assets  of 
the  bank  to  the  creditors  generally.'  The  provisions  of  the  act 
construed  in  this  decision  are  almost  identical  with  the  provisions 
of  the  Michigan  banking  act,  and  we  think  the  construction  a  rea- 
sonable one.  If  the  receiver  can  maintain  this  proceeding,  I  can 
see  no  good  reason  wh3-  he  may  not  sue  and  recover  from  each  of 
the  depositors  w^ho  drew  their  mone3'  after  the  bank  became  embar- 
rassed. Such  a  construction  does  not  commend  itself  to  one's  sense 
of  justice.  See  Curtis  <'.  Eeavitt,  15  N.  Y.  198;  Fidgeon  v.  Sharpe. 
5  Taunt.  545;  Tiffany  i'.  Eucas,  15  Wall.  410;  Jones  v.  Rowland,  8 
Mete.  (Mass.)  377  ;  Utley  v.  Smith,  24  Conn.  310  ;  Haas  v.  Whittier. 
97  Cal.  411,  32  Pac.  449." 


()70  DEPOSITS  [vol  I 

Schnielling'  z'.  State 


SCHMELLING 

V. 

State  et  al. 

(Siipi-fiiic  CoKii  of  Nebraska,  Feb.  9,  i8gg.) 

Trial  without  Jury — Evidence. — That  improper  evidence  was  ad- 
mitted during-  the;  trial  of  a  cause  to  a  court  without  a  jury  is  not 
alone  sufficient  reason  for  the  reversal  of  the  judg-ment. 

Same — Same — Presumptions. — If  the  trial  was  to  the  court  without 
a  jury,  the  presumption  will  prevail  on  appeal  that  the  court  con- 
sidered none  but  the  proper  evidence. 

Same  —  Same — Leading  Questions. — If  no  abuse  of  discretion 
appears,  the  permission  of  leading  questions  to  a  witness  is  not 
cause  for  reversal  of  the  judg-ment. 

General  Deposits — Insolvency — Priority.* — The  owner  of  a  sum  of 
money  on  a  g^eneral  deposit  in  a  bank  at  the  time  of  its  failure  is 
not  entitled  to  a  preferred  claim  against  the  assets  in  the  hands  of 
its  receiver. 

Conflicting  Evidence — Review.— A  finding-  upon  conflicting-  evi- 
dence will  not  be  disturbed  on  appeal  if  there  is  sufficient  evidence 
for  its  sitpport. 

(Syllabus  by  the  Court.) 

Error  b\^  depositor  to  Nuckolls  county  district  court, 
yiffirnied. 

StublKS  d'  Mauck,  for  plaintiff  in  error. 
S.  A.  Scarlc,  for  defendants  in  error. 

Harrison,  C.  J.  The  Bank  of  Superior  failed  in 
business  on  or  about  February  11,  1895  ;  and  in  the 
regfular  course  of  procedure  under  the  law  of  the  state 
then  in  force  relative  to  banks,  and  the 
adjustment  of  the  affairs  of  insolvent  ones, 
a  receiver  was  appointed  for  the  bank  we  have  named, 
and  entered  upon  the  discharg-e  of  the  duties  which  by 
law  were  devolved  upon  him.  The  plaintiff  in  error 
presented  an  application  to  the  receiver  by  petition  in 
the  district  court  of  Nuckolls  county,  by  which  he 
demanded  that    for  the  sum  of  $822.77  he  be  adjudg-ed 

*See  note,  ante  95  et  seg. 


B  CAS]  DEPOSITS  b7l 

Schmelliiig-  i'.  State 

to  have  a  preferred  claim  ag-ainst  the  assets  of  the  bank 
in  the  hands  of  the  receiver,  and  that  it  be  ordered 
paid  to  him.  Issues  were  joined,  and,  after  a  trial 
thereof  to  the  court,  the  prayer  of  the  application  was 
denied. 

The  application  of  plaintiff  in  error  for  a  preferred 
claim  was  predicated  upon  the  assertion  that  he  had 
placed  in  the  bank  the  amount  he  claims  to  be  his  due, 
not  g-enerally,  but  to  be  held  to  await  the  arrival  of  the 
time  for  the  performance  of  a  contract  for  the  sale  and 
purchase  of  some  real  estate  in  which  he  was  the 
named  purchaser  (this  contract  was  then  put  in  care  of 
the  bank),  at  which  time  it  was  to  be  paid  to  the  vendor 
of  the  land.  The  contention  was  and  is  that  the  money 
was  not  a  g-eneral  deposit,  but  a  special  and  specific 
one,  and,  as  such,  entitled  to  preference  in  payment 
from  the  assets  of  the  bank.  The  deposition  of  the 
party  who  at  the  time  the  bank  failed  was  its  cashier 
was  taken,  also  of  the  one  who  was  then  its  assistant 
cashier.  This  was  done  in  Chicaj^o,  to  which  city 
these  persons  had  removed  subsequent  to  the  closinor 
of  the  bank.  The  plaintiff  in  error  was  not  present  in 
person  or  by  counsel  at  the  takinw-  of  the  depositions, 
and  for  him  there  were  filed  objections  to  a  number  of 
the  interrog-atories  propounded.  This  was  done  after 
the  depositions  were  received  and  filed  in  the  court  of 
trial,  and  prior  to  the  hearing.  The  objections  were 
overruled,  and  the  depositions  read  and  received  in 
evidence,  and  the  admission  of  this  testimony  is  of  the 
errors  assig-ned  and  presented.  That  evidence  ad- 
mitted during  a  trial  to  the  court  without  a 
jury  was  incompetent,  irrelevant,  or  im-  Jury^Rtideilce. 
material  will  not  alone  work  a  reversal  of 
the  judg-ment.  McKee  v.  Bainter,  52  Neb.  604,  72  N. 
W.  1044;  King-  :•.  Murphy,  49  Neb.  670,  68  N.  W. 
1029;  Viergutz  v.  Aultman,  Miller  &  Co.,  46  Neb.  141, 
64  N.  W.  693.  It  will  be  presumed  that 
the  trial  court  considered  none  other  than  p?'"l„,,piVo,','sr 
the  proper  evidence.  McKee  v.  Bainter, 
supra  ;    Smith  v.  Perry,  52   Neb.  738,    73  N.    W.  282. 


672  DEPOSITS  [voiv  I 

Schmelling  v.  State 

Moreover,  a  considerable  portion  of  the  testimony  to 
which  objection  was  interposed  was  competent  and 
material. 

Of    the    objection    that    each    of    a    majority    of    the 
questions  asked    at  the   takinof  of  the    depositions    was 

leading-,  it  must  be  said  that  they  were  open 
SngT-««ns.   to  the  complaint  ;  and,  had  the  trial  court's 

ruling"  been  the  reverse  of  what  it  was,  we 
should  have  been  entirely  satisfied  of  its  propriety  and 
correctness,  but  the  rule  is  :  "The  extent  to  which 
leading-  questions  may  be  allowed  rests  in  the  discre- 
tion of  the  trial  court,  and  the  rulings  in  that  respect 
will  not,  in  the  absence  of  an  abuse  of  discretion, 
be  disturbed  by  this  court."  Iron  Co.  r.  Burg-,  47 
Neb.  21,  66  N.  W.  8  ;  Railroad  Co.  v.  Hedg-e,  44  Neb. 
448,  62  N.  W.  887  ;  Bank  v.  Leonard,  40  Neb.  676, 
59  N.  W.  107  ;  Insurance  Co.  v.  Gotthelf,  35  Neb. 
351,53  N.  W.  137.  We  do  not  feel  warranted  in 
saying-  that  there  was  any  abuse  of  discretion  in  the 
allowance  of  these  leading-  questions  ;  hence  must 
disreg-ard  this  arg'ument. 

The    only    further    assignment  of  error  is  that    the 
finding-    and    judgment    were    not    supported    by    the 

evidence.  The  evidence  on  the  main  point 
Sf-Sw:      involved    in    the  litigation    was    conflicting, 

and  there  were  facts  and  circumstances  as 
well  as  direct  testimony  which  would  have  warranted 
a  contrary  conclusion  to  the  one  reached  by  the  trial 
court,  biit  the  one  at  which  the  court  arrived  had 
sufficient  of  the  evidence  to  sustain  it,  and  will  not  be 
disturbed. 

The  decision  of  the  case  hinged  upon  the  question  of 
whether  the  money  of  the  plaintiff   in  error  was  in  the 

bank  as  a  special  deposit,  a  special  or  trust 
«fnf rai uppnsits-  fund,  and  entitled  to  a  preference  in  pay- 
PriorifT''"         nient  from   the  assets  of  the  bank,  or  was  it 

an  ordinary  or  a  general  deposit,  and  the 
claim  not  entitled  to  be  preferred.  The  trial  court 
determined  it  was  the  latter,  and  there  was  sufficient 
evidence  to  sustain  the  finding.  The  judgment  w-as 
proper,  and  must  be  afi&rmed.     Affirmed. 


B  CAS]  DEPOSITS  673 

Burrell  v.  Bennett 


BURRELL  Cf  al. 

V. 

Bennett. 

(Supreme  Court  of  Washington,  March  4,  iSgg.) 

Insolvency — Preferences. "^ — When  a  bank  was  in  fact  insolvent, 
and  its  otficers  and  the  plaintiffs  were  chargeable  with  notice  of  its 
condition,  the  bank,  in  order  to  gain  an  extension  of  time,  pledged 
a  note  and  mortgage  as  additional  security  for  a  debt  due  plaintiffs. 
Held,  that  such  transaction  was  an  unlawful  preference. 

Appeal  by  plaintiffs  from  Whatcom  county  superior 
court.     AffiDJied. 

Bloomficld  &  Evans,  for  appellants. 
Black  &  Lcainiiig,  for  respondent. 

Reavis,  J.  The  Pug-et  Sound  Loan,  Trust  &  Bank- 
ing- Company  was  in  July,  1893,  under  control  of  a 
receiver  appointed  by  order  of  the  superior  court,  and 
so  remained  until  November,  1894.  On  that  date  its 
officers,  under  the  terms  of  an  ag-reement  between  the 
bank  and  its  creditors,  and  by  permission  of  the 
superior  court,  resumed  business.  One  of  the  con- 
ditions of  its  resumption  of  business  was  that  money 
should  be  borrowed  from  the  Bank  of  California  and 
other  parties,  including-  the  appellants  here,  for  the 
purpose  of  carrying-  on  the  business,  and  to  be  used  in 
payment  of  the  creditors  of  the  bank.  Under  the 
arrang-ement  so  made,  the  banking-  company  borrowed 
$5,000  from  the  appellants,  and,  as  evidence  of  the  in- 
debtedness, on  November  24,  1894,  delivered  to  ap- 
pellants two  certificates  of  deposit,  of  $2,500  each, 
payable,  respectively,  six  and  nine  months  after  date, 
and  also  delivered  to  appellants  certain  collateral  securi- 

*See  notes  at  end  of  case. 
B  CAS— 43 


674  DEPOSITS  [vol  I 

Bvirrell  v.  Bennett 

ties,  consisting^  of  notes,  stock,  and  morto-agfes,  as  se- 
curity for  the  payment  of  the  certificates  of  deposit. 
In  May,  1895,  when  the  first  certificate  of  deposit  was 
due,  the  bankino-  company  asked  for  an  extension  of 
time.  After  some  neg^otiations  between  the  banking- 
company  and  the  appellants,  the  payment  of  $600  was 
made  to  appellants,  and  the  note  and  mortgage  here  in 
controversy  were  delivered  to  appellants  as  additional 
security,  with  a  written  power  of  sale  thereof.  The 
banking  company  continued  to  carry  on  business  until 
November,  1895,  when  it  was  adjudged  insolvent,  and 
a  receiver  appointed  to  take  charge  of  its  affairs.  The 
certificates  of  deposit  not  having  been  paid,  appellants 
commenced  this  action  to  foreclose  and  sell  their  se- 
curity so  pledged.  The  respondent  receiver  appeared, 
and  made  two  defenses  to  the  suit — First,  that  the 
pledge  of  the  note  and  mortgage  as  collateral  security 
was  made  without  authority  of  the  trustees  of  the 
banking  company  ;  that  there  was  no  formal  resolu- 
tion of  the  board  authorizing  it  ;  second,  that  the  com- 
pany was  at  the  time  in  fact  insolvent  ;  and  that  the 
delivery  of  the  collateral  security  to  appellants  with 
such  knowledge  was  an  unlawful  preference  of  ap- 
pellants over  the  general  creditors  of  the  banking  com- 
pany. 

1.  The  delivery  of  the  collateral  security  to  appel- 
lants by  the  officers  of  the  banking  company  was,  we 
think,  authorized  ;  and  the  only  question  presented  for 
determination  here  is  whether  the  delivery  of  the  col- 
lateral security  in  suit  to  appellants  was  at  the  time  an 
unlawful  preference  by  the  insolvent  corporation  of 
appellants,  and  an  injury  to  the  other  general  creditors. 
'  2.  The  sixteenth  finding  of  fact  made  by  the  superior 
Courtis  as  follows:  "This  court  further  finds  as  a 
fact  that  the  officers  of  said  bank  acted  in  good  faith 
in  pledging  said  collaterals  on  said  25th  day  of  May, 
1895,  believing  the  same  to  be  to  the  best  interest  of 
said  bank,  and  that  said  officers  did  not  at  said  time 
realize  that  said  bank  was  insolvent,  and  that  plaintiff 
received    said    pledge,    and  granted   said   extension  of 


B  CAS]  DEPOSITS  675 

Burrell  v.  Bennett 

time,  without  knowing-  that  said  bank    was    insolvent  ; 
but  this  court  further  finds  as  a  fact    that  the    officers 
of  said    bank    and    plaintiffs  should  have    known    from 
the  facts,  at  that  time  before  them,  that  said  bank  was 
either  insolvent    or  in  imminent  dang-er  of  insolvency  ; 
and  the  officers  of  said  bank  also  knew  that  unless  said 
extension  of  time  could  be  procured  from  plaintiffs,  and 
also  from  other    creditors    whose  claims   against   said 
bank  matured    on    or  about  said  day,    that   said    bank 
could  not  continue  business. ' '  The  finding-  is  challeng-ed 
by  counsel  for  appellants  as  not  sustained  by    the  evi- 
dence,  and   as    immaterial.      That,    at   the    date    men- 
tioned in  the  finding-,  the  bank  was  insolvent,  was  also 
found    by  the  superior    court,  and  is  abundantly   sus- 
tained   bv    the    evidence  ;  and  some   criticism   may   be 
properly  made  of  the  expression  "that   said   officers  of 
the  bank  did  not  at  said  time  realize  that  said  bank  was 
insolvent,"    because    we  think  it    entirely    improbable 
that  intellig-ent  banking-  officers,  in  the  manag-ement  of 
its  affairs  at  that  time,  did  not  know  the    bank  was  in 
fact  insolvent.     However,  that  portion  of  the  sixteenth 
finding-,  "But  this  court  further  found  that  the  officers 
of  the  said  bank  and  plaintiffs  [appellants]  should  have 
known  from  the  facts  at  the  time  before  them  that  said 
bank  was  either  insolvent  or  in  imminent  danger  of  in- 
solvency,"   is  sustained,    w'e    think,    by  the    evidence. 
The  appellants    were    not   strangers   to  the    insolvent 
banking  company.     They  were  familiar    with  the    fact 
that  it  had    been   insolvent,    and   its  affairs  under    the 
control  of  the  receivership   until  November,  1894,    and 
that  it  reopened    under    an    agreement    with    its  cred- 
itors, and    was  conducting  its  business   in    accordance 
with     the    terms    of    its    reopening.     Appellants   had 
requested    the    payment   of   the   certificate    of    deposit 
when    it    fell  due.     Ten    shares    of    stock    in    another 
corporation,     held     by    appellants     as     collateral    se- 
curity,  had  become  valueless.     The    defendant    bank- 
ing   company  asked    for  an  extension    of  time,    and  for 
such  extension  the  note  and  mortgage  in  suit  here  were 
given  as  additional  security.     The  amount  of  appellants' 


676  DEPOSITS  [vol  r 

Notes 

certificate  of  deposit  was  reduced  by  cash  payment  and 
additional  security  g^iven  for  the  remainder.  The 
officers  of  the  banking  company  knew  that,  unless  the 
extension  of  time  was  secured  from  the  plaintiffs  and 
the  other  creditors  whose  claims  against  the  bank 
matured  about  that  time,  the  bank  could  not  continue 
business.  Counsel  for  appellants  urge  with  much 
earnestness  that  the  facts  shown  in  this  case  do  not  fall 
within  the  former  decisions  of  this  court  upon  unlawful 
preferences  by  insolvent  corporations.  Under  the 
conditions  existing  at  the  time  the  additional  collateral 
security  was  delivered  to  appellants,  the  banking  cor- 
poration being  in  fact  insolvent,  the  relations  of  the 
appellants  and  the  banking  officers  and  their  knowledge 
of  its  affairs  being  such  as  to  advise  them  of  its  condi- 
tion, the  pledge  of  the  collateral  security  was  in  fact  a 
preference  of  appellants  by  an  insolvent  corporation, 
within  the  rule  announced  by  this  court.  Conover  :•. 
Hull,  10  Wash.  673,  39  Pac.  166  ;  Cook  v.  Moody,  18 
Wash.  114,  50  Pac.  1020. 

The  frequent  and  exhaustive  consideration  of  what 
is  termed  the  "trust-fund  theory"  by  this  court  in  its 
construction  of  the  statutes  and  policy  of  the  state 
would  make  it  unprofitable  to  review  the  numerous  and 
ver}^  respectable  authorities  presented  here  for  our 
consideration  by  counsel  for  appellants,  as  the  court  is 
satisfied  with  its  adjudications  heretofore  rendered  on 
this  subject.  The  judgment  of  the  superior  court  is 
affirmed. 

Gordon,    C.    J.,  and  Dunbar   and   Anders,    JJ., 

concur. 


Banks — Insolvency. — See  generally,  3  Am.  &  Eng.  Enc.  of  Law 
{2iid  Ed.),  847  ef  seg. 

What  Constitutes  Insolvency.— A  bank  is  insolvent  when  it  is  un- 
able to  meet  its  liabilities  as  the,v  become  due  in  the  ordinary  course 
of  business  ;  and  a  bank  is  not  insolvent,  in  the  sense  of  the  law 
as  long  as  it  meets  its  liabilities  as  they  become  due,  and  there  is  a 
reasonable  expectation  on  the  part  of  the  officers  familiar  with  its- 


B  CAS]  CHECKS  677 

Morris  v.  Eufaiila  Nat.  Bank 

business  affairs  of  continuing  to  do  so.  Minton  v.  Stahlman 
(Tenn.  1896)  3  Am.  &  Eng-.  Corp.  Cas.,  N.  S.,  fiote  507,  34  S.  W.  Rep. 
222 

"A  bank  is  not  in  contemplation  of  insolvency  until  the  fact 
becomes  reasonably  apparent  to  its  officers  that  it  will  be  presently 
unable  to  meet  its  obligations,  and  will  be  obliged  to  suspend  its 
ordinary  operations."  Ai'mstrong  v.  Chemical  Nat.  Bank,  41  Fed. 
Rep.  234;  Roberts  v.  Hill,  24  Fed.  Rep.  571. 

National  Banks — Insolvency — Preferences. — Under  the  national 
bank  act,  to  render  a  transfer  of  assets  by  an  insolvent  national 
bank  invalid,  it  must  be  made  either  for  the  purpose  of  preventing 
the  application  of  the  assets  in  accordance  with  the  requirements  of 
the  statute,  or  for  the  purpose  of  preferring  one  creditor  to  another. 
National  Security  Bank  v.  Butler,  129  U.  S.  223.  See  also  McDonald 
V.  Chemical  Nat.  Bank  (U.  S.),  ante  and  note. 


Morris 


EuFAUEA  Nat.  Bank. 

{Supreme  Court  of  Alabama,  Feb.  2,  i8gg.) 

Collecting  Bank  Receiving  Check  for  Draft — Dishonor — Liability.* 

— A  bank  received  a  draft  from  the  drawer  for  collection  ;  and,  upon 
presenting  it  for  payment,  received  from  the  drawee  his  check  for 
the  amount  of  the  draft,  drawn  on  another  bank  of  the  same  town 
in  which  it  was  located.  Held,  that,  as  between  itself  and  the 
drawer  of  the  check,  the  bank  had  until  the  close  of  banking  hours 
on  the  next  secular  day  after  receiving  the  check  to  present  it  to 
the  drawee  bank  for  payment, — the  time  allowed  by  commercial 
law,  as  the  bank  in  presenting  the  check  was  not  the  agent  of  its 
drawer. 

Pleading. — It  is  not  allowable  to  join  a  count  in  case  with  one  in 
assumpsit. 

Appeal  by  plaintiff  from  Barbour  county  circuit 
court.     Ajfirnicd. 

The  complaint  read  as  follows:  "The  plaintiff 
claims  of  the  defendant  live  hundred  dollars  as  dam- 
ag-es  for  that  whereas,  to  wit,  on  March  30,  1891,  the 
defendant  had  in  its  possession  for  collection  a  certain 
draft  or  bill    of  exchange    drawn    on   plaintiff    by    the 

*See  note  at  end  of  case. 


678  CHECKS  [vol  r 

Morris  r.  Eufaula  Nat.  Bank 

Mound  City  Distilliiio-  Company,  and  accepted  by  him, 
for  the  sum  of  four  hundred  and  seventy  and  22-100 
dollars,  and  which  said  draft  or  bill  of  exchang-e  was 
due  and  payable  on  said  March  30,  1891;  and  that  on 
said  day  the  said  defendant  presented  said  draft  or  bill 
of  exchange  to  the  plaintiff  in  the  city  of  Eufaula, 
Alabama,  about  10  o'clock  in  the  forenoon  of  said  day, 
for  payment,  and  that  said  plaintiff  then  and  there  gave 
to  said  defendant  a  check  on  the  John  McNab  Bank,  a 
bank  then  doing-  a  banking  business  in  the  city  of 
Eufaula,  Alabama,  for  said  sum  of  four  hundred  and 
seventy  and  22-100  dollars,  the  amount  due  on  said 
draft  or  bill  of  exchange.  And  plaintiff  avers  that  he 
drew  said  check  for  said  sum  on  the  John  McNab 
Bank,  and  delivered  the  same  to  the  defendant  in  the 
city  of  Kufaula,  Alabama,  about  10  o'clock  in  the  fore- 
noon of  said  March  30,  1891,  and  that  at  the  time  said 
check  was  so  drawn  by  plaintiff  and  delivered  by  him 
to  the  defendant,  and  during  the  remainder  of  said  day, 
March  30,  1891,  the  said  John  McNab  Bank  kept  open 
its  banking  house  and  carried  on  its  banking  business 
in  the  usual  wa3^  and  paid  all  checks  which  were  drawn 
on  or  against  it  during  said  day.  And  plaintiff  further 
avers  that  at  the  time  he  drew  said  check  and  delivered 
it  to  the  defendant  as  aforesaid  he  had  on  deposit  to  his 
credit  in  the  said  John  McNab  Bank,  and  subject  to 
his  check,  the  sum  of  two  thousand  dollars,  and  that 
the  said  defendant,  by  the  exercise  of  reasonable 
diligence,  could  have  presented  said  check  to  the  said 
John  McNab  Bank  during  banking  hours  on  said  March 
30,  1891;  and  that  if  defendant  had  so  presented  said 
check  on  said  March  30,  1891,  the  same  would  have 
been  paid  in  full  by  the  said  John  McNab  Bank,  but 
said  defendant,  notwithstanding  its  contract  in  the 
premises,  and  in  disregard  of  its  duty  arising  out  of 
its  contract  with  plaintiff,  failed  to  present  said  check  to 
the  said  John  McNab  Bank  on  said  March  30,  1891.  And 
plaintiff  further  avers  that  after  said  March  30,  1891, 
and  on  March  31,  1891,  the  said  John  McNab  Bank  sus- 
pended pavment,  and  failed,    and    never    after  its  said 


B  CAS]  CHECKS  679 

Morris  v.  Eufaula  Nat.  Bank 

failure  carried  on  any  business,  and  by  reason  of  the 
premises  the  said  plaintiff  was  compelled  by  said  de- 
fendant, on  March  31,  1891,  to  take  up  said  check  sO' 
gfiven  by  him  to  it  as  aforesaid,  and  pay  said  defendant 
in  money  the  said  sum  of  four  hundred  and  seventy 
and  22-100  dollars  on  March  31,  1891,  and  by  reason 
thereof  plaintiff  was  damag^ed  as  aforesaid  ;  wherefore 
he  bring-s  this  suit." 

G.  L.  Comer,  for  appellant. 
S.  H.  Deni,  Jr.,  for  appellee. 

Per  Curiam.  A  draft  had  been  drawn  by  the 
Mound  City  Distillino-  Company  on  the  plaintiff,  Morris, 
and  duly  accepted  by  him.  It  was  due  on  March  30, 
1891,  and  was  held  by  the  defendant,  the  E^ufaula 
National  Bank,  for  collection.  The  latter  made  due 
presentment  of  it  to  the  drawee  and  acceptor  thereof 
for  payment  on  March  30th,  and  received  from  him  a 
bank  check  drawn  by  him  for  the  amount  due  on  the 
accepted  draft  on  the  John  McNab  Bank,  another 
banking-  institution  then  doing-  business  at  Kufaula^ 
Ala.,  where  the  payee  thereof  was  located.  The  check 
dated  March  30th  was  payable  to  the  Kufaula  National 
Bank,  and  was  delivered  about  10  o'clock  in  the  fore- 
noon. The  John  McNab  Bank  continued  to  pay  checks 
drawn  on  it  and  presented  during  the  remainder  of  the 
day  of  March  30th,  and,  having- then  closed  its  doors,  did 
not  thereafter  resume  business  operations.  The  plain- 
tiff had  funds  on  deposit  with  the  drawee  sufficient  to 
meet  the  check,  w^hich  would  have  been  paid  if  pre- 
sented within  banking  hours  on  the  day  it  was  delivered 
to  defendant.  On  March  31st,  the  John  McNab  Bank 
being  then  closed,  the  plaintiff  took  up  his  check,  and 
paid  defendant  the  amount  called  for  therein,  S470.22. 
The  first  amended  count,  from  which  the  above  facts 
appear,  states  that  the  plaintiff  "was  compelled"  by 
the  defendant  to  take  up  the  check,  and  we  therefore 
assume  that  it  was  taken  up  and  the  amount  paid  on 
the  insistence  of  the  defendant  that  it  should  be  done. 
The  plaintiff  afterwards  brought  his  action  against  the 


680  CHECKS  -  [vol  I 

Morris  v.  Eufaula  Nat.  Bank 

defendant,  wherein  he  claims  damag-es  on  account  of 
the  failure  of  the  defendant  to  present  the  check  on 
March  30th.  A  check  is  payable  on  presentation  and 
demand.  Tocharg-e  the  drawer,  the  holder  is  required 
to  present  it  within  a  reasonable  time,  and  after  the 
lapse  of  a  reasonable  time  from  its  delivery  by  the 
drawer  the  holder  retains  it  at  his  peril.  Savings  Co. 
V.  Weakley,  103  Ala.  458,  15  South.  854;  Watt  r. 
Gans  (Ala.)  21  South.  1011,  As  between  the  holder 
and  drawer  of  the  check,  however,  presentment  may 
be  made  at  any  time,  and  delay  in  presentment  does 
not  discharge  the  liability  of  the  drawer  unless  loss  to 
him  has  resulted.  Carroll  v.  Sweet,  128  N.  Y.  19, 
27  N.  E.  763  ;  2  Daniel,  Ne^.  Inst.  §  1587  ;  Savings 
Co.  V.  Weakley,  supra.  Without  questioning  these 
g-eneral  principles,  it  was  held  on  the  former  appeal  in 
this  case  (106  Ala.  383,  18  South.  11)  that  the  amended 
complaint  showed  a  cause  of  action.  The  conclusion 
of  the  court  was  reached  upon  a  distinction,  therein 
pointed  out,  as  being-  established  by  the  authorities 
cited  in  the  opinion.  In  illustrating-  the  proposition 
announced  by  him  (2  Morse,  Banks,  §  421),  quoted  in 
our  former  opinion,  that  learned  author  was  not  as 
lucid  as  he  usually  is,  but  the  proposition  itself  is 
clear.  He  thus  states  the  same  doctrine  in  section 
240  :  "But  when  a  check  is  taken,  instead  of  money, 
by  one  acting-  for  others,  a  delay  of  presentment  for  a 
day,  or  for  any  time  beyond  that  within  which,  with 
proper  and  reasonable  diligence,  it  can  be  presented, 
is  at  the  peril  of  the  party  retaining-  the  check  and 
postponing  presentment,  as  between  him  and  the 
persons  in  interest  whom  he  represents.  And  where 
loss  occurs  because  such  a  check  is  not  presented  on 
the  da}^  of  its  reception,  the  agent  is  liable."  The 
same  doctrine  is  thus  stated  by  Mr.  Daniel  :  "The 
allowance  of  a  day  to  present  the  check  does  not  extend 
to  an  agent  who  receives  one  for  a  debt  of  his  principal. 
He  must  present  it  instanter."  2  Daniel  Neg-.  Inst,  i^ 
1590,  The  authority  cited  by  each  of  these  text 
writers  is  Smith  v.    Miller,  43  N,  Y,   171  ;   Mr.  Daniel 


B  CAS]  CHECKS  681 

Morris  v.  Eufaula  Nat.  Bauk 

citing-,  in  addition,  Farwell  i\  Curtis,  7  Biss.  165, 
Fed.  Cas.  No.  4,690,  and  First  Nat.  Bank  of  Meadville 
V.  Fourth  Nat.  Bank  of  New  York,  16  Hun,  332.  As 
the  case  of  Smith  r.  Miller,  43  N.  Y.  171,  52  N.  Y. 
546,  is  cited  as  sustaining  the  conclusion  of  the  court 
in  this  case  on  the  former  appeal,  it  is  proper  to  make 
a  fuller  statement  of  it  than  we  would  otherwise  feel 
called  on  to  do.  The  plaintiffs  in  that  casebroug-ht  an 
action  to  recover  the  unpaid  balance  of  the  price  of  a 
bill  of  g-oods  sold  by  the  plaintiffs  to  the  defendants. 
The  defendants  set  up  a  defense  of  payment  by  a  draft 
for  $2,968.69  drawn  b}-  them  on  James  K.  Place  &  Co., 
of  New  York,  to  the  order  of  plaintiffs,  who  resided 
and  did  business  in  New  York,  the  defendants  residing- 
at  Buffalo.  The  plaintiffs  received  the  draft  by  mail 
on  the  morning*  of  November  19th,  and  immediately 
indorsed  it,  and  at  about  half  past  1  in  the  afternoon 
of  the  same  day  presented  it  for  payment  at  the  count- 
ing- house  of  James  K.  Place  &  Co.,  the  drawees,  who 
were  merchants  in  New  York  in  g-ood  standing.  In 
payment  of  the  draft  James  K.  Place  &  Co.  g-ave  their 
check  on  the  Manufacturers'  National  Bank  of  New 
York  Cit}',  to  the  order  of  plaintiffs,  for  the  full 
amount.  At  the  time  plaintiffs  received  the  check  of 
James  K.  Place  &  Co.  the  latter  had  funds  in  the 
Manufacturers'  Bank  to  meet  the  check,  which  would 
have  been  paid  had  it  been  presented  on  that  day. 
The  check  was  deposited  during-  the  same  afternoon  in 
the  Citizens'  Bank  for  collection,  and  was  not  presented 
for  payment  at  the  Manufacturers'  National  Bank  till 
12  o'clock  the  next  day,  on  the  morning-  of  which 
James  K.  Place  &  Co.  had  failed,  and  on  that  account 
payment  of  the  check  was  refused.  The  action  there- 
fore was  between  parties  to  the  orig-inal  draft,  and 
was  not  between  the  parties  to  the  check  which  James 
K.  Place  &  Co.  had  g-iven  to  plaintiffs.  The  court,  in 
its  opinion,  says  :  "When  a  check  is  taken,  instead  of 
money,  by  one  acting-  for  others,  as  was  done  by  the 
plaintiffs,  a  delay  of  presentment  for  a  day,  or  for  any 
time  be3^ond  that  within  which,  with  proper  and 
reasonable   dilig-ence,  it   can    be   presented,    is   at   the 


682  CHECKS  [vol  r 

Morris  v.  Eufaula  Nat.  Bank 

peril  of  the  party  thus  retaining-  the  check  and  post- 
poning- presentment,  as  between  him  and  the  persons 
in  interest  whom  he  represents."  43  N.  Y.  176.  In 
First  Nat.  Bank  of  Meadville  v.  Fourth  Nat.  Bank  of 
New  York,  16  Hun,  332,  77  N.  Y.  320,  it  appeared 
that  the  Meadville  Bank  had  forwarded  to  the  Fourth 
National  Bank  a  sight  draft  drawn  by  another  bank 
in  Meadville  on  certain  bankers  in  New  York.  On 
receipt  of  the  draft,  the  Fourth  National  Bank  presented 
it  to  the  drawees  for  payment,  who  gave  their  check 
on  another  New  York  bank  for  the  amount,  and  the 
draft  was  delivered  to  them.  The  Fourth  National 
Bank  did  not  present  this  check  for  payment  on  that  day, 
but  sent  it  through  a  clearing  house,  and  it  was  pre- 
sented the  next  day  for  payment,  but  payment  was  re- 
fused,the  drawers  of  the  check  having- failed  on  that  day. 
The  Fourth  National  Bank  thereupon  returned  the 
check  to  the  drawers,  received  back  the  draft,  made 
formal  demand  of  payment  and  caused  the  draft  to  be 
protested  for  nonpayment,  and  on  the  next  day  due 
notice  of  protest  was  served  by  mail  upon  plaintiffs  and 
upon  the  drawer  of  the  draft.  The  action  was  brought 
by  the  Meadville  Bank  ao^ainst' the  Fourth  National 
Bank  to  recover  damag-es  resulting-  from  allegfed  negli- 
g-ence  on  the  part  of  defendant  in  the  performance  of  its 
duty,  as  agent  for  plaintiff.  It  was  held  that  it  was 
the  duty  of  defendant  to  have  presented  the  check  for 
payment  as  soon  as,  with  reasonable  diligence,  it  could, 
and  for  any  damages  arising  from  the  delay  in  presenta- 
tion it  was  liable.  This  case,  it  will  be  observed,  was 
between  the  drawer  or  owner  of  the  draft  and  its  agent 
for  collecting  the  same.  The  question  presented  in 
Farwell  v.  Curtis,  7  Biss.  165,  Fed.  Cas.  No.  4,690,  so 
far  as  it  bears  on  the  point  under  discussion,  was  of  the 
same  g-eneral  nature  as  that  in  Smith  v.  Miller,  which 
was  there  cited  and  approved.  If  the  Mound  City 
Distilling-  Company  were  suing-  the  Eufaula  National 
Bank  for  accepting  the  check  of  the  drawee  of  the  draft, 
and  thereby  causing  loss  to  it,  the  cases  referred  to 
would  be  in  point,  but  that  is  not  the  case  presented  by 


B  CAS]  CHECKS  683 

Morris  v.  Eufaula  Nat.  Bank 

the  record  before  us.  And  that  the  court  in  Smith  r. 
Miller  did  not  intend  that  its  lang-uag-e  or  decision 
should  be  construed  to  apply  to  the  relative  rig-hts  of 
the  parties  to  the  check  itself  drawn  by  James  K.  Place 
&L  Co.  is  apparent  from  its  lang-uag-e  just  preceding- 
that  above  quoted,  the  court  saying-:  "But  a  check  is 
payable  instantly,  and,  as  between  the  drawer  and 
drawee,  the  latter  has,  in  analog-y  to  the  rules  applica- 
ble to  inland  bills  of  exchang-e,  until  the  day  after  the 
receipt  of  a  check  to  present  it  for  payment,  when 
drawn  on  a  bank  in  the  same  place  where  given  and 
received.  But,"  continues  the  court,  "the  duty  of  the 
plaintiffs  is  not  determined  by  that  rule  of  commercial 
law.  That  rule  has  respect  only  to  the  contract  and 
liability  of  parties  to  the  instrument."  And  we  may 
say  further  that  in  Railroad  Co.  v.  Collins,  3  Lans.  29, 
57  N.  Y.  641,  the  question  decided  in  Smith  v.  Miller 
is  clearly  pointed  out.  There  the  defendant  had  given 
the  plaintiff  a  check  on  a  local  bank  for  the  amount  of 
freig-ht  bills  on  May  4th.  The  bank  on  which  it  was 
drawn  failed  on  the  5th,  and  the  check  was  not  presented 
or  paid.  The  action  was  for  the  amount  of  the  freig-ht 
bill,  for  which  the  check  had  been  g-iven.  The  court 
held  that  there  was  no  laches  in  not  presenting-  the 
check  before  the  bank  closed,  as  the  plaintiff  had  the 
whole  of  the  next  day  after  receiving-  it  (/.  e.  of  the  5th) 
in  which  to  present  it  ;  and,  referring-  to  Smith  :■. 
Miller,  distinguished  it  in  the  particular  above  pointed 
out,  namely,  that  that  case  was  not  disposed  of  upon 
the  rules  of  law  regulating-  the  rights  and  duties,  re- 
spectively, of  the  drawer  and  drawee  of  a  check,  but 
upon  the  rules  applicable  to  one  who  takes  a  check  for 
collection,  acting-  for  one  not  a  party  to  it.  The 
distinction,  therefore,  to  be  drawn  from  the  foreg-oing- 
authorities  is  this  :  That,  as  between  the  drawer  or 
owner  of    the    draft  on  the  one   hand   and    the    party 

charg-ed  with  the  dutv  of  collecting-  it  on  the 
'o'frSS  other  hand,  the  question  of  their  relative 
ho'nlr'-Lia^biiity.     ^ig^^ts  is  to  be  determined   by  the  rules  of 

law  applicable  to  principal  and  agent;  and 
that,  as  between  the  drawer  and  the  payee  of  a  check 


684 


CHECKS 
Morris  v.  Eufaula  Nat.  Bank 


[vol  I 


g-iven  under  the  circumstances  and  for  the  purpose 
shown  in  this  case,  the  question  of  their  respective 
rig-hts  and  liabilities  is  to  be  ascertained  and  fixed  by 
the  principles  of  the  commercial  law.  The  defendant 
here,  in  collecting-  the  draft,  was  the  agent  of  the 
drawer  thereof,  and  in  no  proper  sense  can  it  be  said 
to  have  been  the  agent  of  the  plaintiff.  1  Morse,  Banks, 
S  214  ;  Dodge  v.  Trust  Co.,  93  U.  S.  385  ;  Anderson 
r.  Gill,  79  Md.  312,  29  Atl.  527.  There  are  numerous 
cases,  besides  those  already  adverted  to,  some  of  which 
are  referred  to  hereafter,  where  the  action  was  upon 
the  check  itself,  or  upon  the  original  indebtedness,  and 
the  defense  was  interposed  of  payment,  by  reason  of 
laches  in  the  presentation  of  the  check  for  payment, 
which  resulted  in  a  loss  or  damage  to  the  drawer  ;  and 
such  laches  and  consequent  damage  we  have  held  may 
be  shown  under  a  plea  of  payment.  Watt  v.  Gans  (Ala. ) 
21  South.  1011.  Manifestly,  the  drawer's  case  is  not 
made  any  stronger  by  the  mere  fact  that  he  is  plaintiff 
than  it  would,  under  the  same  circumstances,  be  if  he 
were  defendant,  and  pleading-  that  he  was  discharged 
by  the  payee's  or  holder's  delay  in  presenting  the 
check.  It  would,  indeed,  be  an  anomaly  to  decide  that 
the  defendant  had  a  reasonable  time  within  which  to 
present  the  check  for  payment,  in  order  to  charge  the 
drawer,  and,  under  the  same  state  of  facts,  to  hold 
that  the  defendant  was  guilty  of  negligence  in  not 
presenting  it  before  the  expiration  of  such  reasonable 
time. 

Under  the  facts  stated  in  the  count  of  the  complaint 
under  consideration,  the  only  obligation,  so  far  as  con- 
cerned the  plaintiff,  which  rested  upon  the  defendant, 
was  to  use  due  diligence  to  make  presentment  and 
demand  of  payment  of  the  check  within  the  reasonable 
time  allowed  by  the  rules  of  the  commercial  law,  and, 
upon  its  being  dishonored,  to  give  due  notice  to  the 
drawer.  1  Morse,  Banks,  §  218.  What,  then,  is  the 
reasonable  time  which  the  defendant  had  within  which 
to  discharge  the  obligation,  under  the  facts  of  this  case? 
We  consider   it  thoroughly  settled  that  the  reasonable 


B  CAS]  CHECKS  685 

Morris  v.  Eufaula  Nat.  Bank 

time  allowed  the  holder  for  preseatinf^  a  check,  when 
he  receives  it  in  the  satn^  place  where  the  bank  on 
which  it  is  drawn  is  located,  is  till  the  close  of  banking- 
hours  on  the  next  secular  day  ;  and  if,  in  the  meantime, 
the  bank  fails,  the  loss  will  fall  on  the  drawer.  Dmiel , 
Neg-.  Inst.  §  1590  ;  1  Morse,  Banks,  §§  240,  421  ;  Rand. 
Com.  Paper,  §  1103  ;  Bank  v.  Spicer,  6  Wend.  443  ; 
Weart'.  Ivee,  87  Mo.  358;  Bickford  v.  Bank,  42  111. 
238  ;  Simpson  v.  Insurance  Co.,  44  Cal.  139  ;  Loux  v. 
Fox,  171  Pa.  St.  68,  33  Atl.  190  ;  Anderson  r.  Gill,  79 
Md.312,  29  Atl.  527;  Holmes  v.  Roe,  62  Mich.  199,  28 
N.  W.  864;  Smith  r.  Miller,  43  N.  Y.  171;  O'Brien  v. 
Smith,  1  Black,  99.  We  recog^nized  and  approved  this 
rule  in  Saving's  Co.  v.  Weakley,  supra.  In  Bank  v. 
Nelson,  105  Ala.  180,  16  South.  707,  this  court  held 
that  checks  were  included  in  the  word  "bills"  as  used 
in  section  1761  of  the  Code  of  this  state,  relating-  to 
instruments  g-overned  by  the  commercial  law.  In  that 
case,  Judge  Haralson,  speaking-  for  the  court,  says: 
"We  fail  to  see  why  checks,  as  well  as  other 
commercial  instruments,  do  not  require  the  protection 
of  the  statute.  They  are  as  well  known,  and  from  the 
necessities  of  the  case  enter  as  larg-ely  into  the  com- 
mercial transactions  of  the  country,  as  other  species  of 
commercial  instruments;  and,  after  all  we  have  said 
and  attempted  on  the  subject  of  neg-otiable  instruments 
for  these  many  years,  to  relegate  them  to  take  their 
chances  as  commercial  bastards,  and  make  their  own 
way  in  the  commercial  world,  deprived  of  the  protection 
which  is  accorded  to  other  negotiable  instruments,  it 
seems  would  be  against  reason,  authority,  and  the 
interest  of  the  countrv."  Nothing-  is  shown  bv  the 
count  we  have  discussed  which  calls  for  any  modifi- 
cation of  the  well-settled  rule  above  announced.  The 
acceptance  of  the  check  by  the  defendant  was  only  a 
payment  of  the  draft  snb  modo,  and  could  become 
operative  as  a  payment  in  fact  only  when  the  check 
was  paid  (Smith  v.  Miller,  suprci)\  and,  the  drawee 
bank  being-  closed  on  March  31st,  the  defendant  could 
on  that  day  have  tendered  back  to  the  drawer  his  check. 


686  CHECKS  [vol  I 

Morris  z'.  Eufaula  Nat.  Bank 

and  made  formal  demand  for  the  payment  of  the 
accepted  draft  (First  Nat.  Bank  of  Meadville  v.  Fourth 
Nat.  Bank  of  New  York,  77  N.  Y.  320).  Whether, 
therefore,  his  payment  on  March  31st  be  treated  as  a 
payment  of  his  check  or  of  the  acceptance,  the  result 
is  the  same  as  to  him,  as  he  was,  by  reason  of  having- 
accepted  the  draft,  liable  thereon  as  the  principal 
debtor.  3  Am.  &  Fng-.  Fnc.  Law  (2d  Kd.)  470; 
Ticknor  z\  Bank,  3  Ala.  135.  His  liability  was  not 
discharg-ed,  and  under  the  views  we  have  expressed 
the  defendant  was  not  liable  to  him  in  damag-es.  It 
follows  that  the  demurrer  to  the  first  count  should 
have  been  sustained,  and  that  the  former  opinion  in  this 
case  (106  Ala,  383,  18  South.  11)  must  be  overruled. 

After  the  case  returned  to  the  circuit  court,  the 
plaintiff  was  allowed  to  amend  his  complaint  by  filing 
an  additional  count,  which  averred  substantially  the 
same  facts  that  appear  in  the  orig-inal  com- 
plaint, except  that  he  averred  that  at  the 
time  he  delivered  his  check  to  defendant  the  latter 
"contracted  with  plaintiff  to  present  the  same  within  a 
reasonable  time  to  said  John  McNab  Bank  for  payment, 
and  "that  defendant  violated  its  contract  with  plaintiff 
in  that  it  did  not  present  said  check  for  payment  to  the 
John  McNab  Bank  within  a  reasonable  time  on  said 
March  30,  1891."  Without  stopping-  to  determine 
whether  the  meaning-  of  the  averments  is  that  a  contract 
was  made  whereby  the  defendant  ag-reed  to  present 
the  check  on  March  30th,  the  day  of  its  receipt, 
we  are  satisfied  the  court's  ruling-  is  free  from 
error  on  this  branch  of  a  case.  As  we  construe 
the  orig-inal  complaint,  it  counted  on  the  want  of  due 
dilig-ence  or  neg-ligence  of  the  defendant  in  presenting- 
the  check,  and  was  therefore  in  case.  The  new  count 
claiming-  damag-es  by  reason  of  the  alleg-ed  violation  of 
the  contract  therein  set  out  was  in  assumpsit.  But  it 
is  not  allowable  to  join  a  count  in  case  with  one  in 
assumpsit.  By  the  introduction  of  the  additional  count 
the  complaint  was  made  to  contain  a  misjoinder  of 
counts,  and  the  defect  was  properly  taken  advantag-e  of 


B  CAS]  TRUST  FUNDS  687 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

bv  the  demurrer  to  the  entire  complaint  as  amended. 
Wilkinson  v.  Moseley,  30  Ala.  562.  The  plaintiff 
having  declined  to  plead  further,  judg"ment  was  ren- 
dered aofainst  him,  and  the  judo-ment  of  the  circuit 
court  is  affirmed. 

The  foregfoingf  opinion  was  prepared  by  former  Chief 
Justice  BrickeIvL,  and  is  adopted  by  the  court. 

NOTK. 

Checks  on  Local  Banks — Presentment. — As  a  g^eneral  rule,  the 
holder  of  a  check  on  a  local  bank  has  until  the  close  of  banking- 
hours  on  the  next  secular  day  after  the  check  is  receiv^ed  to  present 
it  for  payment.  Industrial  Trust,  etc.,  Co.  v.  Weakley,  103  Ala.  458  ; 
Bickford  ?'.  Chicago  First  Nat.  Bank,  42  111.238,89  Am.  Dec.  436  ; 
Cawein  z'.  Browinski,  6  Bush  (Ky.)  754;  Veazie  Bank  v.  Winn,  40  Me. 
60  ;  Taylor  v.  Wilson,  11  Met.  (Mass.)  44  ;  Hamilton  v.  Winona  Salt, 
etc.,  Co.,  95  Mich.  436  ;  Wear  v.  lyee,  87  Mo.  358  ;  Merritt  v.  Todd, 
23  N.  Y.  41,  80  Am.  Dec.  243  ;  Kelty  v.  Erie  Second  Nat.  Bank,  52 
Barb.  (N.  Y.)  334;  Charlotte  First  Nat.  Bank  z^.  Alexander,  84  N. 
Car.  30;  Merchants'  Nat.  Bank  v.  Proctor,  1  Cine.  Super.  Ct.  Rep. 
(Ohio)  1  ;  Doherty  v.  Watson  29  W.  N.  C.  (Pa.)  32;  Kirkpatrick  v. 
Puryear,  93  Tenn.  409;  Gregg  v.  Beane,  69  Vt.  22,  37  Atl.  248,  Bkg. 
E.  J. 


New  Farmers'  Bank's  Trustee 
Cockrell. 

(Court  of  Appeals  of  Kentucky,  May  /j,  i8gg.) 

Deposits — Trust  Funds — Assignment  for  Creditors — Priority.* — 
Where  deposits  are  received  by  a  bank  with  knowledge  that  it  is  a 
trust  fund,  under  an  agreement  to  repay  it  with  interest,  and  such 
fund  is  used  by  the  bank  in  its  business,  and  the  bank  subsequently 
makes  a  general  assignment  for  the  benefit  of  its  creditors,  the 
cestuis  que  trustent  dLve  not  entitled  to  have  the  deposits  refunded  out 
of  the  assets  in  the  hands  of  the  bank's  assignee,  to  the  exclusion 
of  general  creditors,  unless  it  appears  that  the  trust  fund  was  con- 
tained in  the  assets  of  the  bank  which  came  to  the  hands  of  the 
assignee  ;  and  the  fact  that  the  trust  fund  was  carried  upon  the 
books  of  the  bank  to  the  credit  of  the  depositor  as  trustee  is  immate- 
rial in  this  connection. 

*See  notes  at  end  of  case. 


688  TRUST  FUNDS  [vOL  I 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

Appeal  by  defendant  from'Montg-omery  county  cir- 
cuit court.      Rcrcrsed. 

Stone  ds  Sitddidh,  John  C.  Miller,  and  C.  P.  Chen- 
anlty  for  appellant. 

Tyler  d-  A-pperson,  for  appellee. 

Du  RellE,  J.  William  Mitchell  tiled  suit  in  the 
Montg-omery  circuit  court  ag-ainst  the  appellant,  alleg-- 
ing-  that  he  had  been  appointed,  by  order  of  court  in  an 
action  in  said  court  by  Anderson's  administrator 
ag-ainst  Annie  Dooley  and  others,  as  trustee  and  re- 
ceiver for  the  Hocker  children  ;  that  a  larg-e  fund  had 
come  into  his  hands,  of  which  he  had  deposited  two 
sums,  aofg-reg-ating^  nearly  $2,300,  in  the  New  Farmers' 
Bank,  under  an  ag-reement  that  the  bank  should  repay 
him,  as  such  trustee  and  receiver,  the  amounts  depos- 
ited, with  interest  ;  that  said  funds  were  deposited  by 
him  in  his  trust  capacity,  and  were  trust  funds  in  the 
hand  of  the  bank,  and  that  he  was  entitled  to  be  paid 
the  amount  of  them  in  full  before  the  general  creditors 
of  the  bank  ;  that  the  bank  had  made  a  gfeneral  deed 
of  assig-nment  for  the  benefit  of  its  creditors,  and,  the 
trustee  thereby  appointed  having-  failed  to  qualify,  the 
appellant  was  appointed  by  the  court,  and  had  quali- 
fied and  acted  as  trustee  ;  that  he,  Mitchell,  was  nomi- 
nally acting-  as  receiver  and  trustee  of  the  Hocker 
children,  but  the  bank  was  the  real  receiver  and 
trustee.  A  demurrer  having  been  sustained  to  the 
petition,  an  amended  petition  was  filed,  alleging  that, 
at  the  time  of  Mitchell's  "appointment  as  such  receiver, 
said  bank  was  desirous  of  obtaining  the  funds  which 
had  thus  come  to  his  hands,  and  was  willing  to  pay 
the  aforesaid  interest  thereon  to  obtain  same  as_  a 
deposit,  and  at  its  instance  and  for  its  benefit  plaintiff 
was  induced  and  authorized  to  seek  said  appointment  as 
receiver,  and  to  qualify  as  such  ;  plaintiff  at  that  tirne 
being  cashier  or  president  of  the  said  bank.  Plaintiff 
states  that  from  the  time  that  said  funds  were  deposited 
in  said  bank, as  aforesaid  until  its  assignment  to  R.  B. 
Young,  who  failed  to  qualify,  they  were  recognized  by 


\ 


B  CAs]  TRUST  FUNDS  689 

New  Farmers'  Bank's  Trustee  z'.  Cockrell 

said  bank  and  its  officers  as  trust  funds,  subject  to  the 
control  of  this  court,  and  said  bank  as  the  real  receiver 
and  plaintiff  as  nominal  receiver  only  ;  that  said  funds 
were,  from  the  time  of  their  deposit  in  said  bank  as 
aforesaid  to  its  assig-nment,  carried  on  its  books  to  his 
respective  accounts  as  trustee  and  receiver  aforesaid, 
separate  and  distinct  from  all  other  accounts,  and  so 
remain  today."  Mitchell  having-  died,  and  appellee 
havingf  been  appointed  in  his  place  as  receiver  of  the 
fund,  the  latter  v^^as  substituted  as  plaintiff.  A  de- 
murrer to  the  petition  as  amended  was  overruled,  and, 
appellant  standing-  by  his  demurrer,  it  was  adjudged 
that  appellee  should  recover  the  amounts  claimed, 
and  that  they  were  trust  funds  and  preferred  claims 
against  the  assets  of  the   bank. 

It  is  not  necessary  to  consider  whether  there  was  in- 
consistent pleading-  in  the  petition  ;  nor,  in  the  view 
we  take  of  the  case,  is  it  essential  to  decide  whether, 
under  the  averments  of  the  petition  as  amended,  the 
bank  was  the  real  trustee  of  the  fund,  thoug-h  it  would 
seem  that  the  averments  as  to  the  deposit,  taken  in  con- 
nection with  the  agreement  to  pay  interest,  would  make 
it  a  loan  by  Mitchell  to  the  bank,  the  money  being* 
placed  to  his  credit  as  trustee,  and  showings-  that  the 
bank  was  indebted  in  that  sum  to  the  trust  fund. 
Mills  t;.  Swearingen,  67  Tex.  270,  3  S.  W.  268.  There 
is  no  averment  indicating-  that  the  loan  was  in  violation 
of  the  trust,  and  so  known  to  be  by  the  bank.  On  the 
contrar3%  the  presumption  from  the  averments  is  that 
Mitchell  was  authorized  to  make  an  investment  or  loan 
of  the  fund,  so  as  to  produce  an  income  for  his  cestnis 
que  triistent,  and  would  have  been  derelict  had  he  not 
done  so.  But,  assuming-  that,  by  virtue  of  the  trans- 
action stated  in  the  petition  as  amended,  the  bank  did 
become  trustee,  we  shall  consider  the  question  whether 
this  entitled  the  beneficial  owners  of  the  fund  to  sub- 
ject the  bank's  assets  to  the  payment  of  their  claim, 
to  the  exclusion  of  the  other  creditors.  On  behalf  of 
appellee  it  is  urged  that  it  is  unnecessary  to  trace  the 
trust    fund  into    the    hands    of  the    assig-nee,  it    being- 

B  CAS — 44 


690  TRUST  FUNDS  [vOL  I 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

admitted  by  the  demurrer  that  the  bank  received  it 
with  notice  of  the  trust  ;  that  it  thereby  became  in 
fact  the  trustee,  and  its  assig-nee  occupied  no  better 
position  with  reference  to  the  fund  than  the  bank  did  ; 
that,  having  mingled  this  fund  with  its  other  money 
and  used  it  in  its  reg-ular  business,  the  assets  of  the 
bank  were  thereby  increased,  and  the  ceslius  que 
irustent  were  entitled  to  have  their  money  refunded 
out  of  the  assets  in  the  hands  of  the  assignee,  to  the 
exclusion  of  the  general  creditors.  In  support  of  this 
contention  counsel  relies  upon  Beach,  Trusts,  §  689, 
where  it  is  said  :  "In  a  recent  case  [Banks  v.  Rice 
(Colo.  App.)  45  Pac.  515]  it  was  held  that  where  one 
ming-les  money  of  another  with  his  own,  and  then 
expends  the  fund  thus  created  in  his  own  business  for 
different  purposes,  in  some  of  which  the  money  cannot 
be  traced,  the  law  will  presume  such  other's  money — 
it  being-  impossible  to  determine  what  proportion  of  it 
was  used  for  each  purpose — ^was  all  used  for  purposes 
in  which  it  can  be  traced,  and,  when  that  purpose  was 
the  purchase  of  new  stock  for  the  business,  the  fact 
that  the  identity  of  the  original  stock  was  changed  by 
sale  and  replenishment  is  immaterial,  so  long-  as  the 
fund  remains  in  the  business."  Beach,  Trusts,  §  700, 
and  a  number  of  other  cases,  are  cited  in  support  of 
this  view.  It  is  to  be  observed  that  in  a  number  of 
these  cases  the  trust  fund  was  lent  in  violation  of  the 
trust,  and  without  authority  to  make  the  loan,  and 
with  knowledge  of  that  fact  on  the  part  of  the  borrower. 
Kspecial  reliance  is  placed  upon  the  case  of  Myers 
1'.  Board,  51  Kan.  87,  32  Pac.  658,  a  case  almost 
exactly  on  all-fours  with  the  case  at  bar,  in  which  the 
treasurer  of  the  school  funds  deposited  them  in  a  bank 
of  which  he  was  manager.  The  fund  had  been  ming-led 
with  the  funds  of  the  bank,  and  used  in  paying  its 
creditors.  The  bank  assigned,  and  neither  the 
money  nor  any  specific  property  into  wdiich  it  had  been 
converted  could  be  clearl}'  traced  in  the  hands  of  the 
assignee.  The  Kansas  court,  after  quoting  2  Story, 
jEq.    Jur.    §    1259,    said  :       "The    modern  doctrine  of 


I 


B  CAS]  TRUST  FUNDS  691 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

equity,  and  the  one  more  in  consonance  with  justice,  is 
that  the  confusion  of  trust  property  so  wrong-fully 
converted  does  not  destroy  the  equity  entirely,  but 
that  when  the  funds  are  traced  into  the  assets  of  the 
unfaithful  trustee,  or  one  who  has  knowledg-e  of  the 
character  of  the  fund,  they  become  a  chargfe  upon  the 
entire  assets  with  which  the  are  mingled.  *  "  * 
It  would  seem  to  be  immaterial  whether  the  property 
with  which  the  trust  funds  were  mingled  was  moneys, 
or  whether  it  was  bills,  notes,  securities,  lands,  or 
other  assets.  As  the  estate  was  augmented  by  the 
conversion  of  the  trust  funds,  no  reason  is  seen,  under 
the  equitable  principles  which  have  been  mentioned, 
why  they  should  not  become  a  charg-e  upon  the  entire 
estate."  Before  proceeding-  to  consider  whether  this 
doctrine  is  law  in  Kentucky,  it  may  be  said  that  it  is 
conceded  by  appellant  that,  if  the  money  could  be 
traced,  it,  or  property  in  which  it  had  been  invested, 
could  be  subjected  to  the  payment  of  appellee's 
claim.  It  is  conceded  by  appellee  that  the  actual  money 
cannot  be  traced,  but  it  is  contended  that  the  fund  is 
traceable  by  reason  of  the  fact  that  it  was  carried  upon 
the  books  of  the  bank  to  the  credit  of  Mitchell  as 
trustee.  In  this  there  seems  to  be  some  confusion. 
From  the  allegations  of  the  petition  we  must  conclude 
that  the  money  (as  in  the  Kansas  case)  was  used  by  the 
bank  in  its  regular  business,  lent  to  its  customers,  and 
used  in  paying-  its  debts.  The  fact  that  the  account 
stands  upon  the  bank's  books  in  favor  of  Mitchell  as 
trustee  does  not  in  any  way  identifv  the  fund  which 
that  account  shows  that  the  bank  owed  to  Mitchell, 
trustee.  The  fund  is  not  thereby  identified,  any  more 
than  it  would  be  if  Mitchell  had  used  the  money  in  his 
own  business,  expending-  it  in  ways  which  could  not  be 
traced,  but  charging  it  to  himself  upon  his  private 
books.  Whatever  that  account  could  be  made  to  pro- 
duce would  doubtless  be  subject  to  the  trust,  but  the 
keeping  of  such  an  account  does  not  in  an}'  way  identify 
the  fund.  As  said  by  Judge  Hines  in  Taylor's  Adni'r  v. 
Taylor's  Assig-nee,  78  Ky.  471,  quoting- from  Williams 


692  TRUST  FUNDS  [vOL  I 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

z\  Rog-ers,  14  Bush,  788  :  "Whenever  a  deposit  is 
made  in  a  bank,  the  relation  of  debtor  and  creditor  is 
established  between  the  bank  and  the  depositor,  the 
identity  of  the  particular  money  is  lost,  and  the 
relation  between  the  parties  continues  the  same, 
whether  it  is  an  ordinary  or  time  deposit,"  If  Mitchell 
had  deposited  the  fund  to  his  individual  credit,  the 
bank's  indebtedness  to  him,  or  whatever  could  be 
collected  from  the  bank  upon  that  account,  if  the  bank 
were  insolvent,  could  be  subjected  to  the  claim  of  the 
beneficiaries,  provided  that  it  could  be  shown  that  the 
indebtedness  of  the  bank  to  Mitchell  was  created  by 
the  loan  of  their  money  ;  and  so  whatever  is  realized 
upon  the  claim  of  the  trustee  for  the  Hocker  children 
can  be  subjected  to  the    payment  of  their  claim. 

It  is  admitted  by  counsel  for  appellee  that  the 
g-eneral  rule  before  the  cases  cited  from  Beach  was  as 
stated  in  2  Story,  Eq,  Jur.  §  1259,  as  follows:  "The 
rig-ht  to  follow  a  trust  fund  ceases  when  the  means  of 
ascertainment  fail,  which,  of  course,  is  the  case  where 
the  subject-matter  is  turned  into  money,  and  mixed  and 
confounded  in  a  g-eneral  mass  of  property  of  the  same 
description."  And  see  Perry,  Trusts,  §  841  ;  Pom. 
Eq.  Jur,  1058,  The  three  cases  from  Wisconsin  which 
support  the  doctrine  contended  for  by  appellee  have 
been  overruled  bv  the  supreme  court  of  that  state  in 
Silk  Co.  V.  Flanders,  58  N,  W,  383,  We  have  been 
cited  to  no  Kentucky  case  changing  the  rule  laid  down 
in  Story.  Ellis  v.  Johnson,  4  Ky.  Law  Rep.  991,  does 
not  appear  to  do  so.  In  that  case  it  was  held  that  the 
trust  fund  could  be  "distinctl}^  traced,"  and  from  the 
abstract  it  would  seem  that  it  was  invested  in  real 
estate.  In  Beavan  v.  Bank  (Ky.)  43  S,  W.  242,  it 
appeared  that  bank  stock  was  taken  by  a  g-uardian  in 
her  own  name,  and  paid  for  by  check  upon  her  personal 
account,  to  the  credit  of  which  her  individual  money, 
as  well  as  trust  funds,  was  indiscriminately  deposited; 
and  the  court  held  that  the  trust  moneys  had  been  so 
intermingled  with  her  individual  money  that  they 
could    not  be  distinguished.     Said  the  court,  through 


B  CAS]  TRUST  FUNDS  693 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

Judge  Burnam  :  "To  follow  the  money,  however, 
and  impress  it  with  the  trusts,  as  aofainst  innocent  third 
persons,  it  must  be  distinctly  traced,  and  clearly  proven 
to  have  been  invested  in  the  security  soug-ht  to  be 
subjected;  and  if  the  trust  fund  has  consisted  of  money, 
and  has  been  mingled  with  other  moneys  of  the  trustee 
in  one  mass,  undivided  and  undisting-uishable,  and  the 
g-uardian  has  made  investments  gfenerally  from  the 
money  in  his  possession,  the  cestui  que  trust  cannot 
claim  specific  lien  upon  the  property  or  funds  con- 
stituting- the  investment.  Hill,  Trustees,  p.  522;  Ferris 
V.  Van  Vechten,  73  N.  Y.  118."  In  King  v.  Noland 
(Ky.)  45  S.  W.  508,  a  trust  fund  of  $1,600  was  distinctly 
traced  as  being-  invested  in  a  house,  the  title  to  which 
was  taken  in  the  name  of  the  trustee,  and  in  a  contest 
between  the  cestui  que  /;7^-?/andan  execution  creditor  it 
was  held  that,  so  far  as  that  fund  was  concerned,  the 
claim  of  the  cestui  que  trust  was  superior  to  that  of 
the  creditor,  but  as  to  the  remainder  of  the  purchase 
money,  which  was  paid  by  check  upon  her  individual 
account,  made  up  of  her  own  funds  and  trust  funds 
intermingled,  the  rig-hts  of  the  creditor  were  held  to  be 
superior.  Said  the  court  in  that  case:  "If  the  trustee 
has  appropriated  it  to  his  own  use,  and  ming-led  it  with 
other  money  belonging-  to  him,  so  that  it  cannot  be 
distinguished  from  his  own  funds,  and  made  invest- 
ments from  such  common  fund,  creditors  are  entitled 
to  subject  the  property  as  his,  and  the  cestui  que 
trust  can  have  no  specific  lien  upon  either  the  property 
or  the  money  so  invested.  Hill,  Trustees,  522;  Beavan 
f.  Bank  (Ky.)  43  S.  W.  242."  And  see  Robinson  t-. 
Woodward  (Ky.)  48  S.  W.  1082  ;  Woodrmg-  r.  White, 
12  Ky.  Law  Rep.  505. 

In  Bank  v.  Dowd,  38  Fed.  173,  commercial  paper 
was  indorsed  to  the  bank  of  which  Dowd  became  re- 
ceiver, collected,  and  the  proceeds  mingled  with  other 
moneys  of  the  bank,  instead  of  being  forwarded.  An 
equitable  lien  was  claimed  on  behalf  of  the  Philadelphia 
bank.  The  court  held  that,  when  Dowd's  bank  min- 
gled the  money  collected  with  its  general  funds,  it  was — 


I 

I 

694  TRUST  FUNDS  [vOL  I 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

if  a  breach  of  trust  was  committed  thereby — a  con- 
version of  such  money,  and  the  plaintiff  became  a 
simple  contract  creditor,  with  no  claim  that  had  a  pref- 
erence at  law  over  another  simple  contract  debt.  Said 
Seymour,  J.,  delivering-  the  opinion  of  the  court,  in 
reference  to  a  number  of  cases  cited  by  appellee  :  "I 
look  upon  these  cases  as  introducing-  a  new  prin- 
ciple into  the  old  and  well-known  doctrine  of  equity, 
which,  with  the  greatest  deference  to  the  courts  decid- 
ing them,  I  do  not  feel  at  liberty  to  follow,  in  advance 
of  any  adjudication  by  the  supreme  court."  A  few 
months  later  the  case  of  Peters  v.  Bain,  133  U.  S.  670 
(10  Sup.  Ct.  354)  was  decided  by  the  supreme  court. 
In  that  case  it  appears  by  the  syllabus  that :  "The  in- 
dividual partners  in  a  private  bank  were  also  directors 
in  a  national  bank,  and  by  reason  of  their  position  be- 
came possessed  of  a  large  part  of  the  means  of  the 
national  bank,  which  they  used  in  their  own  business. 
They  assigned  all  their  property  to  trustees  for  the 
benefit  of  their  creditors.  The  national  bank  also  sus- 
pended, and  went  into  the  hands  of  a  receiver.  Held, 
that  the  receiver  was  entitled  to  the  surrender  of  such 
of  the  property  as  had  been  actually  purchased  with  the 
moneys  of  the  bank,  as  he  mig-ht  elect,  but  that  pur- 
chases made  and  paid  for  out  of  the  general  mass  could 
not  be  claimed  by  the  receiver,  unless  it  could  be  shown 
that  the  moneys  of  the  bank  in  the  general  fund  at  the 
time  of  the  purchase  were  appropriated  for  that  pur- 
pose." Said  Chief  Justice  Waite,  deciding  the  case 
in  the  circuit  court  :  "The  payments  were  all,  so  far 
as  now  appears,  from  the  general  fund  then  in  pos- 
session and  under  the  control  of  the  firm.  Some  of  the 
money  of  the  bank  may  have  gone  into  this  fund,  but 
it  was  not  distinguishable  from  the  rest.  The  mixture 
of  the  money  of  the  bank  with  the  money  of  the  firm 
did  not  make  the  bank  the  owner  of  the  whole.  All 
the  bank  could  in  any  event  claim  would  be  the  right 
to  draw  out  of  the  general  mass  of  money,  so  long-  as  it 
remained  money,  an  amount  equal  to  that  which  had 
been  wrongfully  taken  from  its  own  possession  and  put 


B  CAS]  TRUST  FUNDS  695- 

New  Farmers'  Bank's  Trustee  v.  Cockrell 

there.  Purchases  made  and  paid  for  out  of  the  gen- 
eral mass  cannot  be  claimed  by  the  bank,  unless  it  is 
shown  that  its  own  moneys  then  in  the  fund  were  ap- 
propriated for  that  purpose.  Nothing-  of  the  kind  has 
been  attempted  here,  and  it  has  not  even  been  shown 
that,  when  the  property  in  this  class  was  purchased, 
the  firm  had  in  its  possession  any  of  the  moneys  of  the 
bank  that  could  be  reclaimed  in  specie.  To  gfive  a 
cestui  que  trust  the  benefit  of  purchases  by  his  trustees, 
it  must  be  satisfactorily  shown  that  they  were  actuall}^ 
made  wnth  the  trust  funds."  When  the  case  was 
appealed,  the  supreme  court,  throug-h  Chief  Justice 
Fuller,  quoted  the  opinion  of  Mr.  Justice  Bradley 
in  Freling-huysen  v.  Nug-ent,  36  Fed.  229,  239 :  '  'Form- 
erly the  equitable  rig-ht  of  following  misapplied  money  or 
other  propert}'  into  the  hands  of  the  parties  receiving- 
it  depended  upon  the  ability  of  identifying-  it,  the  equity 
attaching  only  to  the  very  property  misapplied.  This, 
rig-ht  was  first  extended  to  the  proceeds  of  the  property, 
namel3%  to  that  which  was  procured  in  place  of  it  by 
exchang-e,  purchase,  or  sale  ;  but  if  it  became  confused 
with  other  property  of  the  same  kind,  so  as  not  to  be 
distinguishable,  without  any  fault  on  the  part  of  the 
possessor,  the  equity  was  lost.  Finally,  however,  it 
has  been  held  the  better  doctrine  that  confusion  does 
not  destroy  the  equity  entirely,  but  converts  it  into  a 
charg-e  upon  the  entire  mass,  g-iving-  to  the  part}^  in- 
jured by  the  unlawful  diversion  a  priority  of  rig-ht  over 
the  other  creditors  of  the  possessor.  This  is  as  far  as 
the  rule  has  been  carried.  The  difficulty  of  sustaining- 
the  claim  in  the  present  case  is  that  it  does  not  appear 
that  the  g-oods  claimed — that  is  to  say,  the  stock  on 
hand,  finished  and  unfinished — were  either  in  whole  or 
in  part  the  proceeds  of  any  mone}^  unlawfully  ab- 
stracted from  the  bank."  The  court  then  said  :  "The 
same  difficulty  presents  itself  here,  and  while  the  rule 
laid  down  by  Mr.  Justice  Bradley  has  been  recog-- 
nized  and  applied  by  this  court  (Central  Nat.  Bank  :•. 
Connecticut  Mut.  Life  Ins.  Co.,  104  U.  S.  54,  07,  and 
cases  cited),  yet,  as  stated  bv   the  chief  justice,    'pur- 


696  TRUST  FUNDS  [vOL  I 

Notes 

cliases  made  and  paid  for  out  of  the  g^eneral  mass  can- 
not be  claimed  by  the  bank,  unless  it  is  shown  that  its 
own  moneys  then  in  the  fund  were  appropriated  for 
that  purpose.'  " 

The  supreme  court  has,  therefore,  carried  the  doctrine 
further  than  it  has  been  carried  in  any  Kentucky  case 
to  which  we  have  been  cited.  But  the  rule,  even  as 
there  stated,  does  not  sustain  the  contention  of  appel- 
lee. The  same  difficulty  presents  itself  here.  It  does 
not  appear  by  any  averment  that  any  of  the  trust  fund 
was  contained  in  the  assets  of  the  bank  which  came  to 
the  hands  of  the  assig-nee.  The  act  of  March,  1894, 
now  in  force,  had  not  been  passed  at  the  date  of  the 
bank's  assig-nment,  and  does  not,  therefore,  o-overn  the 
distribution  of  the  estate.  It  follows,  therefore,  that 
the  court  erred  in  overruling-  the  demurrer  to  the  peti- 
tion as  amended,  and  the  judg-ment  is,  therefore,  re- 
versed. 


NOTES. 

Trust  Funds — Diversion  —  Recovery. — Funds  impressed  with  a  trust 
which  have  been  wrong-full\'  diverted  may  be  followed  and  reclaimed 
by  the  cestui  que  trust,  if  they  are  susceptible  of  identification,  and 
have  not  passed  to  bona  fide  purchasers  without  notice.  2  Story's 
Eq.  Jur.  t^  1258  ;  Tiff.  &  Bull.  Tr.  &  Trust.  33  ;  2  Pom.  Fq.  Juf.  J^ 
1048  ;  Pennell  v.  Deffell,  4  De  Gex,  M.  &  G.  388  ;  Overseers  v.  Bank, 
2  Gratt.  (Va.)  544,44  Am.  Dec.  399 ;  Kirbv  t/.  Wilson,  98  111.240; 
Ferris  v.  Van  Vechten,  73  N.  Y.  113  ;  Wells  v.  Robinson,  13  Cal.  134  ; 
Georg-e  v.  Ransom,  14  Cal.  658  ;  Lathrop  v.  Bampton,  31  Cal.  17,  89 
Am.  Dec.  141  ;  KnatchbuU  v.  Hallett,  L,.  R.  13  Ch.  Div.  696  ;  Taylor 
V.  Plumer ;  3  Maule  &  S.  562;  Van  Aleu  v.  American  Bank,  52  N. 
Y.  1  ;  Trecothick  v.  Austin,  4  Mason  16  ;  Farmers',  etc..  Bank  v. 
King",  57  Pa.  St.  202,  98  Am.  Dec.  215  ;  McLeod  v.  First  Nat.  Bank, 
42  Miss.  99  ;  First  Nat.  Bank  v.  Hummel,  14  Colo.  259,  20  Am.  St. 
Rep.  257  ;  Johnson  v.  Ames,  11  Pick.  173  ;  Smith  v.  Combs,  49  N.  J. 
Eq.  420  ;  Parker  z'.  Jones,  67  Ala.  234  ;  Third  Nat.  Bank  v.  Still- 
water Gas  Co.,  36  Minn.  75  ;  People  v.  City  Bank,  96  N.  Y.  32  ;  Eng^- 
lar  V.  Offutt,  70  Md.  78,  14  Am.  St.  Rep.  332  ;  Thompson's  Appeal, 
22  Pa.  St.  16 ;  Isom  v.  First  Nat.  Bank  52  Miss.  902 ;  Newton  v. 
Porter,  69  N.  Y.  133,  25  Am.  Reo.  152  :  Union  Nat.  Bank  v.  Goetz 
138  111.  127,  32  Am.  St.  Rep.  119  ;  Phillips  v.  Overfield,  100  Mo.  466 
Treadwell  v.  McKeon,  7  Baxt.  201  ;  Oliver  v.  Piatt,  3  How.  333 
Central  Nat.  Bank  of  Baltimore  v.  Connecticut  M.  L.  Ins.  Co.,  104 
U.  S.  54  ;  Cook  v.  Tullis,  18  Wall.  332  ;  Huckabee  v.  Billingsley,  16 
Ala.  414,  50  Am.  Dec.  183. 


B  CAS]  TRUST  FUNDS  697 

Notes 

Same — Same — Identification. — But  ^yhen  such  funds  are  not  sus- 
ceptible of  identification,  the  rig-ht  of  the  cestui  que  trust  fails. 
Tiff.  &  Bull.  Tr.  &  Trusts.  33  ;  Union  Nat.  Bank  of  Chicag-o  v. 
Goetz,  138  111.  127,  32  Am.  St.  Rep.  119  ;  Trustees  v.  Kirwin,  25  111. 
73  ;  Taylor  v.  Plumer,  3  Maule  &  S.  562  ;  KnatchbuU  v.  Hallett,  L. 
R.  13  Ch.  Div.  69;  Johnson  v.  Ames,  11  Pick.  173  ;  Goodell  v.  Buck, 
67  Me.  514;  Illinois,  etc.,  Bank  v.  Frst  Nat.  Bank,  15  Fed.  Rep.  858  ; 
Ferris  v.  Van  Vechten,  73  N.  Y.  113  ;  Neely  v.  Rood,  54  Mich.  134, 
52  Am.  Rep.  802  ;  U.  S,  v.  Waterborough,  2  Ware  158  ;  Portland,  etc., 
Co.  V.  Locke,  73  Me.  370  ;  Roach  v.  Caraffa,  85  Cal.  436  ;  Wetherell 
V.  O'Brien,  140  111.  146,  33  Am.  St.  Rep.  221,  in  which  case  the  court 
said  :  "When  mone3'  which  is  delivered  to  a  bank,  even  though  it 
be  for  some  specified  purpose,  as,  for  instance,  investment  in  a 
mortgag-e  security,  has  been  mingled  with  the  funds  of  the  bank,  as 
was  done  here,  there  is  no  reason  why  the  depositor  should  be  pre- 
ferred above  any  other  creditor.  Where  a  trustee  changes  the  form 
of  the  trust  property,  the  right  of  the  beneficial  owner  to  reach  it 
and  compel  its  transfer  may  still  exist  if  the  property  can  be  identi- 
fied as  a  distinct  fund,  and  is  not  so  mixed  up  with  other  moneys  or 
property  that  it  can  no  longer  be  speciticalh'  separated.  'If  the 
trust  property  has  been  transferred  to  a  bona  fide  purchaser  for 
value  without  notice,  or  has  lost  its  identity,  the  beneficial  owner 
must,  and  under  other  circumstances  he  may,  resort  to  the  personal 
liability  of  the  wrong-doing  trustee':  2  Pomeroy's  Equity  Juris- 
prudence, sec.  1058.  Where  a  trustee  has  converted  a  trust  fund 
into  money  and  mingled  it  with  his  other  moneys,  so  that  it  cannot 
be  separated  from  the  latter,  the  beneficial  owner  occupies  the 
position  of  a  general  creditor  of  the  estate,  and  cannot  follow  the 
fund  into  the  hands  of  an  assignee  for  the  benefit  of  creditors  :  Illi- 
nois, etc.,  Sav.  Bank  v.  Smith,  21  Blatchf.  275,  and  cases  there  cited. 
Its  identification  is  a  prerequisite  to  the  exercise  of  the  right  to  fol- 
low it:  2  Story's  Equity  Jurisprudence,  sec.  1259.  While  it  may  not  be 
necessary  to  point  to  the  particular  pieces  of  money  or  the  particular 
bank  bills  that  were  deposited  with  the  trustee,  if  the  trust  prop- 
ertj^  be  money,  yet  there  must  be  a  preservation  of  the  distinctness 
of  the  trust  fund.  The  means  of  ascertaining  the  identity  of  the 
fund  fails  where  the  money  has  'been  mixed  and  confounded  in  a 
general  mass  of  property  in  the  bank  of  the  same  description'  :  Doyle 
v._  Murphy,  22  111.  502,  74  Am.  Dec.  165  ;  School  Trustees  v.  Kirwin, 
25  111.  73.  We  have  said  in  the  recent  case  of  Union  Nat.  Bank  v. 
Goetz,  138  111.  127,  32  Am.  St.  Rep.  119,  'that  trust  funds  can  only 
be  pursued  when  they  can  be  clearly  distinguished  from  other  prop- 
erty held  b)'  the  trustee  or  by  those  representing  him.'  " 


698  TRUST  FUNDS  [vOL  I 

First  Nat.  Bank  v.  Valley  State  Bank 


First  Nat.  Bank  of  Sharon,  Pa., 

Z'. 

Valley  State  Bank  of  Hutchinson  et  al. 

(Supreme    Cuurt  of  Kansas,  June  lo,  iSgg.) 

Deposit  by  Agent — Trust — Notice  to  Bank.* — When  an  agent, 
rig-htfull3-  in  possession  of  his  principal's  nione3%  deposits  it  in  a 
bank  of  which  he  is  president  to  his  own  credit  and  as  a  part  of  his 
g-eneral  deposit  account,  and  tells  the  cashier  the  name  of  the  person 
to  whom  it  belongs,  and  instructs  him  to  remit  it  to  the  owner,  but 
the  remittance  is  not  made,  and  the  agent  in  a  short  time  checks 
against  the  general  balance  of  the  account,  inclusive  of  the  deposit 
in  question,  reducing  it  far  below  the  amount  of  such  deposit,  the 
bank  has  the  right  to  presume  that  the  agent  knows  the  remittance 
has  not  been  made  and  has  revoked  the  order  to  make  it,  and  that 
the  checking  out  of  the  deposit  by  the  agent  is  within  the  authorized 
terms  of  his  agencj'  ;  and  in  such  case  the  bank  will  not  be  charged 
with  notice  of  a  trust  in  favor  of  the  owner  of  the  money  to  the  ex- 
tent of  the  deposit  made  by  the  agent. 

Same— Same— Bank's  Lien. — Nor  does  the  trust  in  favor  of  the 
owner  of  the  money  arise  if  subsequently,  and  at  a  time  when  the 
agent's  general  deposit  is  below  the  amount  of  his  principal's  money 
deposited  by  him,  he  discovers  that  the  remittance  has  not  t>een 
made,  and  therefore  directs  that  the  balance  to  his  credit  be  applied 
upon  his  debt  due  to  his  principal,  if  he  is  also  at  the  same  time  in- 
debted to  the  bank,  and  it  chooses  to  assert  its  lien  upon  his  funds  for 
its  protection  ;  but  the  bank  may  refuse  to  do  as  directed,  and  in- 
stead thereof  may  apply  the  balance  of  his  account  to  the  payment 
of  a  debt  which  the  agent  in  his  individual  liability  owes  to  it. 

DoSTKR,  C.  J.,  dissenting. 

(Syllabus  by  the  Court.) 

Error  by  plaintiff  from  Reno  county  district  court. 
Affin)2cd. 

W.  M.   Whitelaiv  and  Frank  S.    Whitelazv,  for  plain- 
tiff in  error. 

Pi'ig'g  &  Williams,  for  defendants  in  error. 


*See  Munnerlyn  v.  Augusta  Sav.  Bank,  88  Ga.  333,  30  Am.  St. 
Rep.  159  ;  Freeholders  v.  Newark  Nat.  Bank,  48  N.  J.  Eq.  51  ;  State 
Nat.  Bank  7'.  Reilly,  124  111.  464;  Hemphill  v.  Yerkes,  132  Pa.  St. 
545,  19  Am.  St.  Rep.  607. 


B  CAS]  TRUST  FUNDS  699 

First  Nat.  Bank  z'.  Valley  State  Bank 

DosTER,  C.  J.  This  was  an  action  brought  by  the 
plaintiff  in  error  to  recover  money  as  a  trust  fund 
belongfing"  to  it,  which  had  been  deposited  in  a  bank  by 
another  in  his  name.  October  25,  1895,  one  ^^^^  ^^^^^^ 
C.  B.  Kvans  executed  to  one  W.  E.  Hutchin- 
son a  promissory  note  for  $4,500,  and  secured  it  by  a 
mortg-ag-e  on  250  head  of  cattle.  Hutchinson  immedi- 
ately transferred  this  note  and  mortg-agfe  to  one  M.  B. 
Abell,  of  Kansas  City,  Mo.,  who  in  turn  imraediatel}" 
transferred  them  to  plaintiff  in  error.  Immediately 
after  or  possibly  before  this  last  transfer  Hutchinson, 
as  the  agent  of  Abell,  shipped  the  cattle  to  Kansas  City, 
and  sold  them  for  $5,540.  This  sum  was  sent  through 
the  medium  of  a  bank  in  Kansas  City  to  one  of  the 
defendants  in  error,  the  Valley  State  Bank,  and  placed 
to  the  credit  of  Hutchinson  in  a  general  deposit  account 
kept  by  him.  Hutchinson  at  that  time  was  president 
of  this  bank.  November  1,  1895,  Hutchinson  informed 
one  Wilfley,  the  cashier  of  the  Valley  State  Bank,  that 
the  deposit  to  his  credit  of  the  $5,540  was  the  proceeds 
of  the  sale  of  the  cattle  mortgaged  by  Kvans  to  him  to 
secure  the  note  of  $4,500,  and  which  he  had  transferred 
to  Abell,  and  that  he  desired  his  account  debited  with 
$4,500,  and  the  amount  remitted  to  Abell  in  payment 
of  the  note.  Wilfley  replied  that  he  would  do  as  desired, 
and  Hutchinson  supposed  that  he  had  done  so.  How- 
ever, he  did  not  do  so,  w^hich  fact  Hutchinson  discovered 
about  January  3,  1896.  Intermediate  the  giving  of  the 
direction  to  the  cashier  and  the  discovery  that  it  had 
not  been  complied  with,  Hutchinson  made  additional 
deposits  of  his  own  funds  to  the  credit  of  his  general 
account,  and  drew  checks  upon  it.  Often  the  credit 
side  of  his  account,  including  the  before-mentioned 
deposit  of  $5,540,  was  less  than  the  $4,500  he  had 
directed  to  be  remitted,  running  at  one  time  as  low  as 
about  $500  ;  so  that  Hutchinson  must  have  known  that 
the  remittance  was  not  made  to  Abell,  or  else  must 
have  known  he  was  largely  overdrawing  his  account. 
When  Hutchinson  discovered  that  the  Abell  note  had 
not  been  paid  he  had  to  his  credit  at    the  bank  $3,800. 


700  TRUST  FUNDS  [vOL  I 

First  Nat.  Bank  v.  Valley  State  Bank 

He  borrowed  $700  more  from  the  bank,  giving-  his  note 
therefor,  and  directed  that  the  $3,800  to  his  credit  and 
the  amount  borrowed  be  remitted  to  Abell  in  payment 
of  the  $4,500  note,  of  which  he  still  supposed  Abell  to 
be  the  owner.  The  assistant  cashier,  one  Welsh, 
objected  to  the  use  of  these  funds  for  the  payment  of 
the  Abell  note,  because  Hutchinson  was,  and  for 
several  months  had  been,  indebted  to  the  bank  in  the 
amount  of  another  note  for  $4-, 500,  also  g-iven  to  him  by 
the  before-mentioned  Evans,  which  note  Hutchinson 
had  sold  and  indorsed,  and  which  upon  its  maturity  the 
bank  had  paid  for  him  as  indorser,  and  which  it  still 
held  ag-ainst  him  as  an  oblig^ation  due  to  it.  According 
to  the  desire  of  Welsh,  the  money  was  not  remitted  in 
payment  of  the  Abell  note,  but  was  used  to  dis- 
charg"e  Hutchinson's  indebtedness  due  to  the  bank  on 
the  other  note  ;  that  is,  Hutchinson's  deposit  account 
of  $3,800,  increased  by  the  $700  loan,  was  debited  with 
the  amount  of  his  note.  It  is  not  clear  whether  Hutch- 
inson finally  assented  to  this  arrang-ement.  As  to  all 
other  facts  above  stated  there  is  no  substantial  dispute. 
The  Valley  State  Bank  went  out  of  business,  and 
turned  its  assets  over  to  the  bank  of  Hutchinson,  which 
bank  became  insolvent  and  is  in  the  hands  of  John  M. 
Kinkel,  as  receiver.  Without  g"oing-  into  a  detailed 
explanation,  it  is  sufficient  to  say  that,  under  the  cir- 
cumstances shown  in  evidence,  if  the  Valley  State  Bank 
was  liable  to  the  plaintiff  in  error,  the  First  National 
Bank  of  Sharon,  Pa.,  the  Bank  of  Hutchinson  and 
Kinkel,  as  its  receiver,  are  likewise  liable.  The  dis- 
trict court  held  in  favor  of  the  defendants,  and  the 
plaintiff  prosecutes    error  to  this  court. 

Counsel  for  plaintiff  in  error  vehemently  assert  that 
the  deposit  of  $5,540,  the  proceeds  of  the  sale  of  the 
mortg-agfed  cattle,  was  charg^ed  with  a  trust  to  the  extent 

of  the  note  of  S4,500,  which  had  been  traus- 
Df posit  by -igfiit  ferred  to  Abell  and  to  the  plaintiff  in  error, 
to  Bank.  and  that  the  Valley  State  Bank  was  charged 

with  notice  of  such  trust  when  informed  by 
Hutchinson  of  the   source  from  which   the   deposit   of 


B  CAS]  TRUST  FUNDS  701 

First  Nat.  Bank  v.  Valley  State  Bank 

cattle  money  was  derived,  and  was  directed  to  remit 
the  necessar}^  amount  in  payment  of  the  note.  It  is 
without  doubt  true  that  an  ag-ent  cannot  make  the 
funds  in  his  hands  belong^ino-  to  his  principal  his  own 
funds  by  depositing-  them  to  his  own  credit  in  a  bank. 
He  cannot,  as  to  the  bank,  make  them  his  own  funds 
if  the  bank  has  notice  of  the  real  ownership,  provided 
the  bank  still  has  them  or  their  representative  on  hand 
so  they  can  be  followed  and  reclaimed  by  the  real 
owner.  The  difficulty,  however,  in  such  a  case  as 
this,  is  to  determine  the  extent  of  theag-ent's  authority 
over  the  fund,  after  he  has  deposited  it  to  his  credit, 
when  no  notice  of  ownership  other  than  what  the 
agent  himself  imparts  is  g-iven  to  the  bank.  Does  the 
ag-ent  depositing-  his  principal's  fund  in  his  own  name 
part,  as  ag-ainst  the  bank,  with  all  dominion  or  authority 
over  so  much  of  his  g-eneral  account  as  is  represented 
by  the  deposit  in  question  by  merely  stating  to  the 
bank  that  it  belongs  to  another,  and  directing  it  to  be 
paid  to  him  ?  Can  the  agent  by  so  doing  impose  a 
trust  upon  the  bank,  and  require  the  bank  to  set  apart, 
as  it  were,  so  much  of  the  general  fund  as  it  is  informed 
belongs  to  another,  so  that  not  even  the  agent  and 
depositor,  any  more  than  a  strang-er,  can  exercise 
control  over  it?  We  think  not.  Upon  this  precise 
question,  to  which  the  contention  of  the  parties  becomes 
reduced,  we  have  not  been  favored  by  counsel  on  either 
side  with  any  authorities,  or  with  any  close  reasoning, 
and  with  the  amount  of  other  labor  necessarily  de- 
volving upon  us  we  are  unable  ourselves  to  brief  cases, 
as  it  were,  or  make  much  original  research  among  the 
books.  To  the  extent  that  we  have  been  able  to 
investigfate  we  have  found  no  cases  involvintf  the 
precise  question.  The  fact  that  Hutchinson  was  in 
possession  of  the  fund  derived  from  the  sale  of  the 
mortgaged  cattle  was  sufficient  evidence  to  the  bank 
that  he  had  the  right,  as  agent,  to  control  the  fund, 
— was  sufficient  evidence  that  the  principal  had  put 
him  in  the  possession  of  such  fund.  As  agent  he  could 
make    payments   to    the    principal    in    any    recognized 


7#2 


TRUST  FUNDS 


[VOIv  I 


First  Nat.  Bank  v.  Vallej'  State  Bank 

business  way  he  chose,  and,  so  far  as  concerned  the 
bank,  could  make  it  at  anytime  and  in  such  installment 
pa^^ments  as  he  chose.  If  the  bank  had  learned  from 
any  other  source  than  Hutchinson  himself  that  the 
deposit  was  the  proceeds  of  the  sale  of  cattle  mortgaged 
to  Abell,  or  to  the  plaintiff  in  error,  could  it  have 
raised  a  question  with  Hutchinson  as  to  his  control  of 
the  fund  thus  derived  and  thus  deposited  by  him? 
Could  it  have  refused  to  hojior  Hutchinson's  checks 
drawn  against  it  or  against  the  general  balance  inclu- 
sive of  it,  upon  the  ground  that  it  was  not  Hutchison's 
money,  but  was  somebody  else's,  in  whose  interest  it 
must  keep  and  hold  the  deposit  ?  We  think  not.  It 
would  have  been  bound  to  assume  that  Hutchinson's 
rightful  possession  of  the  fund  justified  him  in  dealing 
with  it  as  he  did  and  in  checking  upon  it  as  he  chose. 
It  would  be  bound  to  assume  that  an  agreement  existed 
between  Hutchinson  and  the  owner  of  the  fund  which 
justified  the  former  in  keeping  it  in  his  own  name  and 
checking  upon  it  as  he  did.  It  would  be  bound  to 
assume  that  Hutchinson  was  dealing  with  the  fund 
within  the  terms  of  an  authorized  agency.  If  this  be 
true,  it  would  make  the  case  nowise  different  if  the 
information  as  to  the  ownership  of  the  fund  and  the 
source  from  which  derived  came  from  Hutchinson, 
instead  of  some  one  else  or  in  some  other  way.  If 
this  be  true,  it  could  make  no  difference  that  Hutch- 
inson gave  the  cashier,  Wilfley,  a  direction  to  remit 
the  entire  amount  to  the  owner.  Until  this  was  done 
the  fund,  so  far  as  the  bank  and  Hutchinson  were 
concerned,  did  not  pass  beyond  the  control  of  the 
latter.  Such  an  order  to  the  cashier  was  not  irrevo- 
cable. If  revoked,  the  bank  could  assume  that  Hutch- 
inson had  changed  his  mind  as  to  the  time  and  manner 
of  payment,  and  that  he  was  still  acting  within  the 
terms  of  his  agency,  or  had  received  new  directions 
from  his  principal.  As  stated  before,  no  authorities 
directly  in  point  have  been  cited  to  us  ;  nor  have  we, 
in  the  cursory  examination  made,  found  any  directly 
in  point.      A    case    which    substantially    involves    the 


B  CAS]  TRUST  FUNDS  703 

First  Nat.  Bank  v.  Valley  State  Bank 

principle,  thoug-h  differinof  somewhat  from  it  in  point 
of  fact,  is  Munnerlyn  v.  Bank,  88  Ga.  333,  14  S.  E. 
554.  In  that  case  it  was  ruled  :  "When  a  trustee 
deposits  money  in  a  bank  to  his  credit  as  agfent,  the 
bank  is  discharg-ed  by  paying-  it  back  to  the  person 
who  made  the  deposit,  and,  in  the  absence  of  notice 
or  knowledg-e  to  the  contrary,  has  the  right  to  assume 
that  he  will  appropriate  the  money  to  its  proper  uses 
and  trusts."  There  can  be  no  substantial  difference 
between  a  case  where  an  agent  makes  a  deposit  of 
money  as  "agent, "  thus  informing- the  bank  that  the 
fund  is  not  in  reality  his,  and  one  in  which  the  agent 
makes  the  deposit  in  his  own  name,  but  at  the  same 
time  informs  the  bank  that  he  is  only  the  agent  of 
another  for  it.  In  both  cases  the  bank  would  have  the 
right  to  assume  that  the  agent  in  dealing  with  the 
fund  was  acting  within  the  terms  of  his  agency. 
Especially  was  this  true  in  the  case  of  the  Valley 
State  Bank.  It  had  the  right  to  assume  that,  on 
account  of  Hutchinson's  presidency  of  it  and  his  pre- 
sumptive familiarity  with  its  business,  he  knew  the 
remittance  had  not  been  made,  and,  knowing  it  had 
not  been  made,  had  concluded  to  do  otherwise  with 
the  fund  in  question. 

The  cases  of  National  Bank  t-.  Insurance  Co.,  104 
U.  S.  54,  and  Van  Alen  v.  Bank,  52  N.  Y.  1,  cited  by 
counsel  for  plaintiff  in   error,  are  not  cases  where  the 

agent  had  checked  out  the  amount  of  the 
Bank'Tueu!^       dcposit    as  Hutchinsou  had  done  ;   but  they 

were  cases  in  which  the  fund  still  existed 
in  the  agent's  name,  and  in  both  instances  the  ques- 
tion reduced  to  the  ultimate  was  whether  the  fact  of 
its  being-  the  fund  of  another  than  the  agent  could  be 
shown  by  the  equitable  owner.  This  is  not  our  ques- 
tion. The  conclusion  being  that  a  trust  did  not  attach 
to  Hutchinson's  general  deposit  in  favor  of  Abell  or 
other  assignee  of  the  mortgage,  it  follows  that  none 
subsequently  attached  by  the  new  direction  given  on 
the  3d  of  January  to  remit  the  balance  of  $3,800  of  de- 
posit  to  Abell    in   payment   upon    the  mortgage  note. 


704 


TRUST  FUNDS 


[vol  I 


First  Nat.  Bank  v.  Valley  State  Bank 

That  was  nothing"  more  than  a  direction  by  Hutchinson 
to  use  his  money  to  pay  his  debt.  At  that  time  the 
bank  was  demanding;  from  Hutchinson  repayment  of 
the  money  it  had  advanced  to  him  with  which  to  dis- 
charg-e  the  other  note.  Upon  any  funds  shown  by  the 
books  to  belong-  to  Hutchinson,  and  concerning'  which 
it  had  no  other  knowledg-e,  it  had  a  banker's  lien,  which 
it  could  enforce  as  ag^ainst  him  and  as  against  any  of 
his  g-eneral  creditors.  1  Morse,  Banks,  §  324  et  seq. 
It  did  enforce  that  lien  by  debiting-  Hutchinson's  ac- 
count with  a  proportionate  amount  of  the  indebtedness 
due  to  it.  Besides,  as  before  stated,  it  is  not  clear  that 
Hutchinson-  did  not  assent  to  the  action  of  the  bank. 
The  court  specially  found  upon  that  subject  as  follows: 
"  The  evidence  does  not  show,  by  a  preponderance 
thereof,  that  there  was  an  agreement  upon  the  part  of 
the  Valley  State  Bank,  by  any  of  its  officers,  with  W. 
E).  Hutchinson,  that  the  $700  loaned  to  Hutchinson, 
mentioned  in  the  preceding*  finding-,  and  the  balance  of 
of  $3,800  credit  on  Hutchinson's  g-eneral  account  with 
the  bank,  should  be  used  by  the  bank  or  its  officers  in 
payment  of  the  note  in  suit,  and  no  part  of  said  sums 
were  at  any  time  set  apart  for  the  purpose  of  paying- 
the  note  In  suit."  The  g-eneral  finding-  having-  been 
ag-ainst  the  plaintiff  in  error,  we  are  bound  to  assume 
that  as  finally  made  it  was  ag-ainst  it  upon  that  specific 
point.  If  Hutchinson  borrowed  the  $700  for  the  pur- 
pose of  applying  it  upon  the  Abell  note,  and  the  bank 
knew  this  intention  when  it  made  the  loan  to  him,  it 
would  be  bound  to  permit  its  application  to  the  intended 
purpose.  It  would  be  held  to  have  waived  its  lien 
upon  the  fund  thus  loaned,  and  to  have  ag-reed  to 
Hutchinson's  use  of  it  in  the  discharg-e  of  his  other 
debt, — in  fact,  would  be  held  to  have  made  the  loan  to 
him  for  that  purpose.  The  burden  of  proof  as  to  the 
making  of  this  agreement  or  the  occurrence  of  facts 
from  which  the  ag-reement  could  be  implied  rested  upon 
the  plaintiff.  That  burden,  as  the  court  finds,  was. 
not  discharged  by  a  preponderance  of  the  evidence.  In 
the   absence   of  an  assent  express  or  implied  upon  the 


B  CAS]  DISCOUNTING  705 

Israel  v.  Gale 

part  of  the  bank  to  allow  the  use  of  the  money  loaned 
for  a  specific  purpose,  it  would,  when  passed  to 
Hutchinson's  credit,  become  covered  as  his  other  funds 
were  b}'  the  lien  of  the  bank.  The  judg-ment  of  the 
court  below  will  be  affirmed. 

Johnston  and  Smith,  JJ.,  concurring*. 

DosTER,  C.  J.  (dissenting-).  I  very  much  doubt  the 
soundness  of  the  principal  conclusions  reached  in  the 
foregoing-  opinion.  In  the  lack  of  directly  supporting- 
authority,  I  dissent.  I  think  that  in  some  instances 
the  doctrine  of  the  impressibilit}^  of  funds  in  the  hands 
of  banks  and  other  custodians  with  trusts  in  favor  of 
equitable  claimants  has  been  carried  to  an  extreme 
length  in  this  state,  and  took  occasion  to  so  remark  in 
Insurance  Co.  i\  Caldwell,  59  Kan.  160,  52  Pac.  440  ; 
but  the  decision  in  this  case  seems  to  be  subject  to  the 
opposite  criticism.  I  think  the  information  g-iven  to 
the  cashier,  Wilfley,  by  Hutchinson,  charg-ed  the  bank 
with  knowledg-e  of  the  trust  character  of  the  deposit 
made. 


Israel 


Gale. 

(Siiprc)iit'  Court  of  tlic    ( 'nited  States,  A/ay  ij,  iSgg.) 

Discounting  Accommodation  Paper  with  Knowledge  of  Its  Nature.*" 

— The  mere  knowledge  on  the  part  of  the  officers  of  a  bank,  when 
discounting-  paper,  that  it  was  drawn  for  accommodation,  will  not 
prevent  the  bank  from  recovering-  thereon. 

Accepting  Accommodation  Paper  as  Payment  of  Antecedent  Debt 
— Sufficiency  of  Evidence. — It  was  contended  that  the  plaintiff  bank 
could  not  recover  on  an  accommodation  note  discounted  by  it,  be- 
cause it  took  the  note  for  an  antecedent  debt  of  the  person  for  whom 
it  was  discounted.  Held,  that  this  proposition  of  fact  was  unsup- 
ported by  the  record,  and,  therefore  it  was  unnecessary'  to  point  out 
the  unsoundness  of  the  legal  contention. 

*See  note  at  end  of  case. 

B  CAS — 45 


706  DISCOUNTING  [vOLr  I 

Israel  v.  Gale 

E^RROR  by  defendant  to  the  United  States  Circuit 
Court  of   Appeals   for  the   Second  Circuit.     Aj/firmcd. 

Fra)ik  Sullivan  Sniitli  and  David  Willcox,  for  plain- 
tiiT  in  error. 

Marti)!  Carey  and  W.  S.  Bisscll,  for  defendant  in 
error. 

Mr.  Justice  White  delivered  the  opinion  of  the 
court. 

The  receiver  of  the  Elmira  National  Bank,  duly 
appointed  by  the  comptroller  of  the  currency,  sued 
Georgfe  M.  Israel,  the  plaintiff  in  error,  on  a 
promissory  note  for  $17, 000, dated  New  York, 
May  14,  1893,  due  on  demand,  and  drawn  by  Israel  to 
the  order  of  the  I^lmira  National  Bank,  and  payable  at 
that  bank.  The  defenses  to  the  action  were,  in  sub- 
stance, these  : 

First.  That  the  note  had  been  placed  by  Israel,  the 
maker,  in  the  hands  of  David  C.  Robinson,  without  any 
consideration,  for  a  particular  purpose,  and  that,  if  it 
had  been  discounted  by  Robinson  at  the  E)lmira  National 
Bank,  such  action  on  his  part  constituted  a  diversion 
from  the  purposes  for  which  the  note  had  been  drawn 
and  delivered  ;  that  from  the  form  of  the  note  (its  bein^ 
made  payable  to  the  bank),  from  the  official  connection 
of  Robinson  with  the  bank,  he  being"  one  of  its  directors, 
and  his  personal  relations  with  the  cashier  of  the  bank, 
as  well  as  from  many  other  circumstances  which  it  is 
unnecessary  to  detail,  the  bank  was  charg-ed  with  such 
notice  as  to  the  diversion  of  the  note  by  Robinson  as 
prevented  the  bank  from  being-  protected  as  an  innocent 
third  holder  for  value. 

Second.  Kven  if  the  discount  of  the  note  was  not  a 
diversion  thereof  from  the  purpose  contemplated  by  the 
drawer,  the  bank  was  nevertheless  subject  to  the  equity 
arising-  from  the  want  of  consideration  between  Israel, 
the  drawer,  and  Robinson,  because,  althoug-h  the  note 
may  have  been,  in  form,  discounted  by  the  bank,  it  had 
in  realit}-^  onlv  been  taken  by  the  bank  for  an  antecedent 
debt  due  it  by  Robinson.     And  from  this  it  is  asserted 


B  CAS]  DISCOUNTING  707 

Israel  v.  Gale 

that  as  the  bank  had  not  parted,  on  the  faith  of  the  note, 
with  any  actual  consideration,  it  was  not  a  holder  for 
value,  and  was  subject  to  the  equitable  defenses  existing" 
between  the  original  persons. 

At  the  trial  the  plaintiff  offered  in  evidence  the  note, 
— the  sig^nature  and  the  discount  thereof  being-  in  effect 
admitted, — and  then  rested  its  case.  The  defendant 
thereupon  offered  testimony  which  it  was  deemed  tended 
to  sustain  his  defenses.  At  the  close  of  the  testimony 
the  court,  over  the  defendant's  exception,  instructed  a 
verdict  in  favor  of  the  plaintiff.  On  error  to  the  court 
of  appeals,  this  action  of  the  trial  court  was  affirmed. 
23  C.  C.  A.  274,  77  Fed.  532. 

Both  the  assignments  of  error  and  the  arg-ument  at 
bar  but  reiterate  and  expand,  in  divers  forms,  the 
defenses  above  stated,  and  which  it  is  asserted  were 
supported  by  evidence  competent  to  go  to  the  jur3^  if 
the  trial  court  had  not  prevented  its  consideration  by  the 
peremptory  instruction  which  it  g-ave. 

The  bill  of  exceptions  contains  the  testimony  offered 
at  the  trial,  and  the  sole  question  which  arises  is,  did 
the  court  rightly  instruct  a  verdict  for  the  plaintiff? 
From  the  evidence  it  undoubtedl}^  resulted  that  the 
note  was  delivered  by  the  maker  to  D.  C.  Robinson,  by 
whom  it  was  discounted  at  the  E^lmira  National  Bank. 
It  also  established  that  Robinson  at  the  time  of  the 
discount  was  a  director  of  the  bank  ;  had  larg-e  and  fre- 
quent dealings  with  it ;  that  he  bore  close  business  and 
personal  relations  with  the  cashier,  and  occupied  a 
position  of  confidence  with  the  other  officers  and  direct- 
ors of  the  bank.  The  occasion  for  the  g-iving-  of  the 
note,  and  the  circumstances  attending-  the  same,  are 
thus  shown  by  the  testimony  of  the  defendant  : 

"I  reside  in  Brooklyn.  I  am  42  years  of  age.  I  am 
at  present  eng-ag-ed  in  the  insurance  business.  In  the 
months  of  April  and  May,  1893,  I  was  employed  in  the 
banking  house  of  I.  B.  Newcomb  &  Co.,  in  Wall  street. 
New  York,  as  a  stenogfrapher  and  typewriter.  I  was 
not  then,  and  am  not  now,  a  man  of  propert}-.  I  know 
D.    C.  Robinson.     At  the  time  I  made  this  note  I  did 


708 


DISCOUNTING 
Israel  i'.  Gale 


[vol  I 


not  receive  any  valuable  thing-  or  other  consideration  for 
the  making-  of  it.  I  have  never  received  any  considera- 
tion for  the  making  of  the  note.  I  had  a  conversation 
with  D.  C.  Robinson  at  the  time  of  the  making-  of  the 
note.  He  stated  to  me  the  objector  purpose  for  which 
he  desired  the  note.  He  said  to  me  that  he  desired  some 
accommodation  notes,  and  he  wanted  us  clerks  to  make 
them,  and  stated  the  amount.  He  said  that  the  reason 
he  wanted  the  accommodation  note  was  that  he  had 
exceeded  his  line  of  discount,  and  could  not  g-et  any 
more  accommodation  ;  that  he  was  building-  a  power 
house  up  there  [in  Elmira],  and  needed  some  money  to 
accomplish  that  purpose  ;  and  that,  if  we  would  g-ive  him 
these  notes,  it  would  enable  him  to  accomplish  that. 
He  also  added  that  we  would  not  be  put  in  any  position 
of  paying-  them  at  any  time,  that  he  would  take  care  of 
them,  and  g-ave  us  positive  assurance  on  that  point ;  and 
naturally,  kuowiugf  the  man,  and  thinking-  that  he  was 
a  millionaire,  as  he  probably  was  at  that  time,  we  had 
no  hesitation  about  going  on  the  notes." 

There  was  no  testimony  tending-  to  refute  these 
statements,  or  in  any  way  calculated  to  enlarg-e  or  to 
restrict  them. 

The  defense,  then,  amounts  to  this  :  That  the  form 
of  the  paper,  and  Robinson's  relation  with  the  bank 
and  its  officers,  were  such  as  to  bring  home  to  the  bank 
the  knowledg-e  of  the  transaction  from  which  the  note 
arose,  and  that  such  knowledg-e  prevents  a  recovery, 
because  Robinson,  taking  the  transaction  to  be  exactly 
as  testified  to  by  the  defendant,  was  without  authority 
to  discount  the  note.  Granting-,  aro/(e/nio,  that  the 
testimony  tended  to  show  such  a  condition  of  fact  as 
to  bring-  home  to  the  bank  a  knowledge  of  the  transac- 
tion, the  contention  rests  upon  a  fallacy,  since  it 
assumes  that  the  note  was  not  given  to  Robinson  to  be 
discounted,  and  that  his  so  using-  it  amounted  to  a 
diversion  from  the  purpose  for  which  it  was  delivered 
to  him.  But  this  is  in  plain  conflict  with  the  avowed 
object  for  which  the  defendant  testified  the  note  was 
drawn  and  delivered,  since  he  swore  that  he  furnished 


B  CAS]  DISCOUNTING  709 

Israel  i>.  Gale 

the  note  because  he  was  told  b}^  Robinson  that  he 
needed  accommodation,  that  his  line  of  discount  on  his 
own  paper  had  been  exceeded,  and  that,  if  he  could  gfet 
the  paper  of  the  defendant,  he  would  overcome  this 
obstacle  ;  in  other  words,  that  he  would  be  able  suc- 
cessfully to  discount  the  paper  of  another  person, 
when  he  could  not  further  discount  his  own.  This 
obvious  import  of  the  testimony  is  fortified,  if  not 
conclusively  proven,  by  the  form  of  the  note  itself, 
which,  instead  of  being-  made  to  the  order  of  Robinson, 
was  to  the  order  of  the  Elmira  National  Bank,  The 
premise,  then,  upon  which  it  is  arg-ued  that  there  was 
proof  tending  to  show  that  the  discount  of  the  note  by 
Robinson  at  the  Elmira  National  Bank  was  a  diversion, 
is  without  foundation  in  fact.  The  only  matters  relied 
on  to  sustain  the  proposition  that  there  was  testimony 
tending-  to  establish  that  the  note  was  diverted,  because 
it  vvas  discounted  at  the  bank  to  whose  order  it  was 
payable,  are  unwarranted  inferences  drawn  from  a 
portion  of  the  conversation,  above  quoted,  which  the 
defendant  states  he  had  with  Robinson  when  the  note 
was  drawn  and  delivered.  The  part  of  the  conversa- 
tion thus  relied  upon  is  the  statement  that  Robinson 
said  when  the  note  was  g-iven  "that  he  was  building-  a 
power  house  up  there  [in  E^lmira],  and  needed  some 
money  to  accomplish  that  purpose,  and,  if  we  would 
g-ive  him  these  notes,  it  would  enable  him  to  accomplish 
that."  This,  it  is  said,  tended  to  show  that  the  agree- 
ment on  which  the  note  was  given  was  not  that  it 
should  be  discounted  at  theKlmira  National  Bank,  but 
that  it  should  be  used  by  Robinson  for  obtaining- 
money  to  build  the  power  house.  In  other  words,  the 
assertion  is  that  the  mere  statement  by  Robinson  of 
the  causes  which  rendered  it  necessar}^  for  him  to 
obtain  a  note  to  be  discounted  at  the  E)lmira  National 
Bank  had  the  effect  of  destroying-  the  very  purpose  for 
which  the  note  was  confessedlv  g-iven.  When  the 
real  result  of  the  contention  is  apprehended,  its 
unsoundness  is  at  once  demonstrated.  Other  portions 
of  the    record  have    been    referred  to   in  arg-ument   as 


710  DISCOUNTING  [vOL  I 

Israel  z'.  Gale 

tendino-  to  show  that  it  could  not  have  been  the 
intention  of  the  defendant,  in  g-ivinor  the  note,  that 
Robinson  should  discount  it  ;  but,  on  examining-  the 
matters  thus  relied  upon,  we  find  they  have  no  tendency 
whatever  to  contradict  or  chang-e  the  plain  result  of 
the  transaction  as  shown  by  the  defendant's  own 
testimony. 

As  the  discount  of  the  note  at  the  Elmira  National 
Bank  was  not  a  diversion,  but,  on  the  contrary,  was  a 
mere  fulfillment  of  the  avowed  object  for 
"ommoiftt'io/pKp.'r  which  the  note  was  asked,  and  to  consum- 
uXtn?"!''''"" "'  mate  which  it  was  delivered,  it  becomes 
irrelevant  to  consider  the  various  circum- 
stances which  it  is  asserted  tended  to  impute  knowledg-e 
to  the  bank  of  the  purpose  for  which  the 
note  was  made  and  delivered.  If  the  ag-reement 
authorized  the  discount  of  the  note,  it  is  impossible  to 
conceive  that  knowledg-e  of  the  ag-reement  could  have 
caused  the  discount  to  be  a  diversion,  and  that  the 
mere  knowledg-e  that  paper  has  been  drawn  for 
accommodation  does  not  prevent  one  who  has  taken  it  for 
value  from  recovering-  thereon  is  too  elementary  to 
require  citation  of  authority. 

The  contention  that,  althoug-h  it  be  conceded  the 
note  was  not  diverted  by  its  discount,  nevertheless  the 
bank  could  not  recover  thereon,  because  it 
mnffiifpi'pras  ^ook  the  uotc  for  an  antecedent  debt,  hence 
l^deTit'Debt-'*"  without  actual  consideration,  depends — 
Evident'*"'  First,  upou  a  proposition  of  fact  (that  is. 
that  there  was  testimony  tending-  to  so 
show);  and,  second,  upon  the  leg-al  assumption  that, 
even  if  there  was  such  testimony,  it  was  adequate  as  a 
legal  defense.  The  latter  proposition  it  is  wholly 
unnecessary  to  consider,  because  the  first  is  unsup- 
ported by  the  record.  All  the  testimony  on  the  subject 
of  the  discount  of  the  note  was  introduced  by  the 
defendant  in  his  effort  to  make  out  his  defense.  It 
was  shown,  without  contradiction,  that  the  note  had 
been  discounted  by  Robinson  at  the  bank,  and  that  the 


B  CAS]  DISCOUNTING  711 

Israel  v.  Gale 

proceeds  were  placed  to  his  credit  in  account.  It  was 
also  shown  that  for  some  time  prior  to  the  day  of  the 
discount  his  account  with  the  bank,  to  the  credit  of 
which  the  proceeds  of  the  discount  were  placed,  was 
overdrawn.  The  exact  state  of  the  account  on  the 
day  the  discount  was  made  was  stated  by  the  cashier 
and  a  bookkeeper  of  the  bank,  and  was  moreover 
referred  to  by  Robinson.  On  the  morning-  of  the  dis- 
count the  debit  to  the  account  of  Robinson,  by  way  of 
overdraft,  is  fixed  by  the  cashier  at  $35,400,  and  by 
the  bookkeeper  at  $35,000.  Robinson  made  the 
following-  statement  :  "The  amount  of  other  notes 
wiped  out  the  overdraft  and  made  a  balance."  The 
bookkeeper's  statement  is  as  follows  : 

"There  was  an  overdraft  of  $35,000  ag-ainst  Mr. 
Robinson  upon  the  books  of  the  bank  on  the  mornino- 
of  May  the  4th.  There  were  items  coming*  throug-h 
the  exchangfes  that  amounted  to  about  573,000,  and 
there  was  a  deposit  made  of  $33,000  to  make  the  over- 
draft o-ood.  These  were  to  take  up  the  items  that 
came  throug-h  the  exchanges.  I  think  that  was  the 
way  of  it.  His  account  would  have  been  overdrawn 
that  nig-ht  for  about  $50,000,  if  it  had  not  been  for  the 
entry  on  the  books  of  the  proceeds  of  these  notes." 

No  other  testim.ony  tending-  to  contradict  these 
statements  made  by  the  defendant's  own  witnesses  is 
contained  in  the  record.  They  manifestly  show  that 
althoug-h  at  the  date  of  the  discount  there  was  a  debit 
to  the  account,  resulting-  from  an  overdraft,  nearly  the 
sum  of  the  overdraft  was  covered  by  items  of  credit, 
irrespective  of  the  note  in  controversy,  and  that  sub- 
sequent to  the  credit  arising-  from  the  note  more  than 
the  entire  sum  of  the  discount  was  paid  out  for  the 
account  of  Robinson,  to  whose  credit  the  proceeds  had 
been  placed.  With  these  uncontradicted  facts  in  mind<,. 
proven  by  the  testimony  offered  by  the  defendant,  and 
with  no  testimony  tending  the  other  way,  it  is  obviously 
unnecessary  to  g-o  further,  and  point  out  the  unsound- 
ness of  the  leg-al  contention  relied  upon. 

Affirmed. 


712 


COLLECTIONS 


[vol  I 


Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

Accommodation  Paper — Knowledge  of  Its  Nature  as  Affecting 
Recovery  by  Holder. — The  mere  knowledge  that  paper  has  been 
drawn  for  accommodation  does  not  prevent  one  who  has  in  good 
faith  taken  it  for  value  from  recovering  thereon.  Union  Bank  v. 
Crine,  33  Fed.  Rep.  809  ;  Molson  v.  Hawley,  1  Blatchf.  (U.  S.)  409  ; 
Armstrong  v.  Scott,  36  Fed.  Rep.  63  ;  U.  S.  Bank  v.  Weisiger,  2  Pet. 
(U.  S.)  331;  Yeaton  v.  Alexandria  Bank,  5  Cranch  (U.  S.),  49; 
Marks  v.  First  Nat.  Bank,  79  Ala.  550  ;  Ross  v.  Whitefield,  1  Sweeny 
(N.  Y.)  318  ;  Montross  v.  Clark,  2  Sandf.  (N.  Y.)  US  ;  Portland 
First  Nat.  Bank  v.  Schuyler,  39  N.  Y.  Super.  Ct.  440  ;  Davis  v.  Day- 
ton, 7  Misc.  Rep.  (N.  Y.  C.  PI.)  488;  Leeke  v.  Hancock,  76  Cal.  127  ; 
Cady  V.  Shepard,  12  Wis.  639;  Wilbur  v.  Williams,  16  R.  I.  242; 
Duncan  v.  Gilbert,  29  N.  J.  L.  521  ;  Marr  v.  Johnson,  9  Yerg.  (Tenn.) 
1  ;  Capital  City  Bank  v.  Des  Moines  Cottonmill  Co.,  84  Iowa  561  ; 
Maitland  v.  Citizens'  Nat.  Bank,  40  Md.  540,  17  Am.  Rep.  620  ;  New- 
bury Bank  V.  Rand,  38  N.  H.  166;  Stephens  z'.  Monongahela  Nat. 
Bank,  88  Pa.  St.  157,  32  Am.  Rep.  438  ;  Lord  v.  Ocean  Bank,  20  Pa. 
St.  384,  59  Am.  Dec.  728  ;  Carpenter  v.  Republic  Nat.  Bank,  106  Pa. 
St.  170;  Quinn  v.  Hard,  43  Vt.  375,5  Am.  Rep.  284;  Faulkner  v. 
Faulkner,  73  Mo.  338  :  Warder  v.  Gibbs,  92  Mich.  29  ;  Best  v.  Noko- 
mis  Nat.  Bank,  76  111.  608  ;  Davis  if.  Randall,  115  Mass.  547,  15  Am. 
Rep.  146  ;  Marsh  v.  Low,  55  Ind.  271  ;  Fant  v.  Miller,  17  Graft.  (Va.) 
48. 


Union  Nat.  Bank 


Citizens'  Bank  of  Union  City  et  al. 

(Suprcvic  Court  of  Indiana.  June  13,  iSgg.) 

Collections — Insolvency — Right  to  Mingle  with  Own  Funds — Bank- 
ing Customs.* — The  usual  and  ordinary  custom  by  which  banks  are 
generally  controlled  in  collecting  paper  does  not  require  them  to 
hold  the  money  collected  separate  and  apart  from  its  own  funds  and 
remit  the  identical  money  collected.  And  when  the  money  is  col- 
lected, and  the  proper  credit  given  to  the  person  by  whom  the  paper 
was  sent  for  collection,  as  a  general  rule,  the  relation  of  debtor  and 
creditor  is  created  between  the  bank  and  such  person,  and  the  rela- 
tion of  trustee  and  cestui  que  trust  does  not  arise.  And  the  fact 
that  the  bank  is  insolvent  when  the  proceeds  of  the  paper  are 
mingled  with  its  own  funds  is  immaterial  in  this  connection,  if  its 
officers  are  not  aware  of  its  insolvency. 

Appeal  bv  plaintiff  from  Randolph  county  circuit 
court.     Affirmed. 

*See  note  at  end  of  case. 


B  CAS]  COLLECTIONS  713 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

Bell  &  Ross,    for  appellant. 
J .   W.  Thompson,  for  appellees. 

Jordan,  C.  J.  This  cause  was  submitted  to  the 
lower  court  as  an  "aofreed  case"  upon  a  statement  of 
facts,  as  provided  by  section  562,  Burns'  Rev.  St.  1894 
(section  553,  Rev.  St.  1881  ;  section  553,  Horner's  Rev. 
St.  1897).  The  foUowino-  are  substantially  the 
material  facts  in  the  case  :  Appellant  is  a  national 
bank  org-anized  under  the  laws  of  the  United  States, 
and  as  such  institution  is  eng-ag-ed  at  Kewanee,  111.,  in 
conducting  a  general  banking-  business.  The  Citizens' 
Bank  of  Union  City,  appellee  herein,  prior  to  being 
placed  in  the  hands  of  a  receiver,  was  a  state  bank 
org-anized  under  the  laws  of  this  state  as  a  bank  of 
discount  and  deposit,  and  on  May  5,  1896.  and  prior 
thereto,  wasengag-edin  doing  a  general  banking-  business 
at  Union  City,  Ind.  This  bank,  on  April  20,  1896,  and 
continuously  thereafter  until  its  suspension,  was  in- 
solvent. On  May  7,  1896,  by  reason  of  its  insolvency, 
it  closed  its  doors,  and  suspended  business,  and  its 
doors  were  not  ag-ain  opened  for  business  after  that 
date.  On  the  morning  of  May  9,  1896,  the  state  bank 
examiner,  under  the  laws  of  the  state,  took  possession 
thereof,  and  the  bank  remained  in  his  possession  until 
the  16th  of  that  month,  when  it  it  was  placed  in  the 
hands  of  appellee  Canadey,  the  receiver  appointed  as 
such  by  the  proper  court.  On  May  1,  1896,  appellant 
bank  was  the  bona  fide  holder  of  a  certain  promissory 
note  for  over  $1,000  in  amount,  executed  by  the  Knapp 
Supply  Company,  a  corporation  located  and  doing- 
business  at  Union  City,  Ind.  This  note  was  payable  at 
the  Citizens'  Bank.  Appellant,  on  May  1,  1895,  in- 
dorsed this  note  for  collection,  and  sent  it  to  the 
Citizens'  Bank,  with  instructions  to  collect  and  remit. 
The  note  was  received  by  the  latter  bank  on  May  2, 
1896,  and  v^as  duly  entered  by  the  bank  on  its  register 
for  collection.  The  note  was  presented,  on  the  same 
day  it  was  received,  for  payment  to  the  maker  thereof, 
the  supply  company.  This  latter  company  was  on 
that  day,  and  for  a  long-  time  prior  thereto    had    been. 


714 


COLLECTIONS 


[vol  I 


Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

a  depositor  of  the  Citizens'  Bank,  having-  therein  on 
deposit,  at  the  time  the  note  was  presented  to  it  for 
payment,  funds  far  in  excess  of  the  amount  of  the  note. 
The  supply  company,  at  the  time  the  note  was  presented 
to  it  for  payment,  drew  its  check  upon  the  Citizens' 
Bank  for  $1,157.83,  the  amount  due  upon  the  note, 
which  check  was  accepted  by  the  Citizens'  Bank  as  a 
payment  in  full  of  the  note.  The  bank  thereupon 
canceled  the  paper  as  paid,  and  delivered  it  to  said 
company,  and  charged  the  amount  of  the  check  to  said 
company's  deposit  account,  the  same  being-  sufficient 
to  more  than  pay  and  satisfy  the  check.  The  amount 
so  collected  by  the  Citizens'  Bank  in  payment  of 
appellant's  claim  was  entered  on  its  collection  reg- 
ister as  a  credit  on  said  collection,  and  on  May 
4-th,  the  next  business  day  after  the  payment  of 
the  note  (the  3d  being-  Sunday),  the  Citizens'  Bank 
drew  its  sight  draft  in  favor  of  appellant  for  the  full 
amount  of  the  collections  (less  charg-es)  on  the  Mer- 
chants' National  Bank  of  Cincinnati,  Ohio.  This 
latter  bank  was  the  regular  correspondent  of  the 
Citizens'  Bank,  and  when  this  sight  draft  was  drawn 
the  Citizens'  Bank  had  as  a  depositor  in  the  Merchants' 
National  Bank  an  account  in  its  favor  in  excess  of  the 
amount  of  said  draft.  On  May  5th  this  draft  was 
mailed  by  the  Citizens'  Bank  to  appellant  as  a 
remittance  of  the  proceeds  of  the  note  collected 
in  the  manner  stated,  and,  without  notice  or  knowl- 
edge of  the  insolvency  of  the  Citizens'  Bank  upon 
the  part  of  appellant,  the  draft  was  received  by 
it,  and  on  the  following-  day,  through  its  regular 
correspondent  bank  in  the  city  of  Chicago,  111., 
was  forwarded  to  the  Merchants'  National  Bank  for 
payment.  On  May  9,  1896,  the  draft  was  presented 
to  the  Merchants'  "^National  Bank  for  payment,  but 
payment  thereof  was  refused,  and  the  draft  protested, 
for  the  reason  that  the  Merchants'  National  Bank  had 
previously  received  notice  of  the  failure  and  suspen- 
sion of  the  Citizens'  Bank.  At  the  time  the  latter 
bank    passed   under    the    control  of  a  receiver    it    had 


B  CAS]  COLLECTIONS  715 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

on  hand  in  its  vaults  as  the  entire  amount  of  money 
in  actual  cash  $159,  which  consisted  in  the  main 
of  small  coins  and  chang-e,  and  did  not  include  any 
of  the  credits  or  money  on  deposit  in  the  Merchants' 
National  Bank  belong-ing-  to  it.  At  the  time  the 
Citizens'  Bank  suspended  and  closed  its  doors,  and 
on  the  day  the  sig"ht  draft  was  presented  for  pay- 
ment at  the  Merchants'  National  Bank,  its  deposits 
in  the  latter  bank  amounted  to  $2,260.44;  and  this 
amount  of  money  has  been  paid  over  to  the  receiver, 
and  is  now  in  his  hands.  The  ag-reed  statement  of 
facts  also  shows  that  on  May  2,  1896,  the  day  on  which 
the  note  in  question  was  received  for  collection,  the 
Citizens'  Bank  had,  as  cash  on  hand,  the  sum  of  $7,206, 
and  on  the  morning*  of  May  4th  it  had  $6,953,  and  on 
the  morning-  of  the  5th,  $6,194,  and  on  the  6th,  $5,114. 
On  May  2d  the  Citizens'  Bank,  in  the  usual  course  of 
business,  bought,  paid  for,  and  cashed  checks,  drafts, 
and  bills  of  exchang-e  on  other  persons  and  banks  to 
the  total  amount  of  $125.85,  and  on  the  same  day  sent 
these  checks,  drafts,  and  bills  to  the  Merchants' 
National  Bank,  and  obtained  credit  for  the  same  as  a 
deposit.  On  May  4th,  in  its  usual  course  of  business, 
it  also  boug"ht,  paid  for,  and  cashed  checks,  drafts, 
and  bills  of  exchangee  amounting*  in  all  to  $2,954.56, 
and  on  the  same  day  these  were  forwarded  to  said 
correspondent,  and  credit  therefor  received.  On  May 
5th  it  boug-ht,  paid  for,  and  cashed  drafts  and  bills  of 
exchang-e  to  the  amount  of  $368.93,  and  these  were 
sent  on  the  same  day  to  the  Merchants'  National 
Bank,  and  credit  obtained  therefor.  According;-  to  the 
showing-  of  the  daily  entries  made  in  the  books  and 
records  of  the  Citizens'  Bank,  it  had  on  hand  May  2, 
1896,  at  the  close  of  the  day's  business  in  its  safe,  as 
cash,  $13,589.93,  and  a  total  cash  item  of  $24,590.01  ; 
on  the  4th  of  May,  accepting-  the  authority  of  its  books, 
it  had  on  hand  as  cash  $10,926,  and  a  total  cash  item  of 
$23,110.93  ;  and  on  the  5th  of  Mav,  810,001.11,  and  a 
total  cash  item  of  $21,815.08;  and  bn'^May  6th,  $3,099.46, 
and    a   total    cash    item  of   $3,189.36.     Of    this    latter 


716  COLLECTIONS  [vOL  I 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

amount  the  receiver  has  received  in  cash,  and  now  has 
in  his  hands,  the  sum  of  82,504.12.  The  facts  show 
that  it  was  the  custom  of  the  Citizens'  Bank,  when 
making  collections  for  persons  or  customers  residing- 
west  of  Union  City,  to  remit  the  amount  collected,  less 
collection  charges,  by  means  of  drafts  drawn  on  the 
Merchants'  National  Bank,  and  that  it  did  not  remit 
the  amount  so  collected  in  money,  and  that  all  of  the 
business  connected  with  the  collection  of  the  note  in 
question  by  the  Citizens'  Bank  was  conducted  by  it  in 
the  usual  and  ordinary  way  of  making  collections  by 
banks,  but  appellant  had  no  notice  or  knowledge  of  the 
insolvency  or  failure  of  the  Citizens'  Bank  prior  to  the 
protest  of  the  draft  sent  to  it  as  a  remittance  of  the 
proceeds  of  said  note.  The  books  of  the  bank,  it  is 
stated,  do  not  show  or  represent,  on  the  days  men- 
tioned, the  true  and  actual  amount  of  cash  on  hand,  but 
simply  show  items  that  were  carried  on  said  books, 
and  treated  as  cash,  but  in  fact  were  not  actual  cash  on 
hand  ;  and  the  amount  stated  above,  as  shown  by  the 
bank's  books  to  be  cash,  included  amounts  which  the 
bank  had  on  deposit  with  correspondent  banks,  includ- 
ing also  the  amount  on  deposit  with  the  Merchants' 
National  Bank.  The  questions  submitted  to  the  lower 
court  under  these  facts  were  :  First.  Are  the  funds  of 
the  bank,  in  the  hands  of  the  receiver,  impressed  with 
a  trust  in  favor  of  appellant  to  the  amount  of  its  claim  ? 
Second.  Is  it  entitled  to  a  preferential  right  over  the 
general  creditors  of  the  insolvent  bmk?  The  lower 
court,  under  the  facts,  held  that  appellant  was  entitled 
to  recover  the  full  amount  of  its  claim  as  a  contract 
creditor,  but  denied  its  right  to  enforce  a  trust,  or  to 
be  preferred  in  its  claim  over  those  of  other  creditors, 
and  rendered  judgment  accordingly. 

The  question  presented  for  our  decision  is,  did  the 
court  err  in  its  conclusions  of  law  upon  the  facts 
stated?  The  principal  contentions  of  appellant's  learned 
counsel  are  :  First.  That  under  the  facts  the  Citizens' 
Bank  is  shown  to  have  served,  in  collecting  the  note  in 
question,  as  the  agent  of  appellant,   and  by    mingling 


B  CAS]  COIvLECTIONS  717 

Uniou  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

the  proceeds  of  the  claim  with  its  own  funds  the  latter 
became  impressed  with  such  a  trust  as  will  entitle 
appellant  to  pursue  the  proceeds,  and  reclaim  them  in 
the  hands  of  the  receiver,  as  its  own  separate  propert}-. 
Second.  That  the  Citizens'  Bank,  by  accepting-  the 
note  for  collection,  and  collecting-  it,  and  ming-ling-  the 
proceeds  thereof  with  its  own,  at  a  time  when  it  is 
shown  to  have  been  insolvent,  was,  under  the  circum- 
stances, g-uilty  of  fraud,  and  for  that  reason  cannot  be 
held  to  have  acquired  any  title  to  either  the  note  or  the 
money  arising-  out  of  its  collection.  In  regard  to  the 
second  contention,  it  may  be  said  that  the  rule  is  g-en- 
erally  asserted  and  enforced  that  where  a  party  has 
been  induced  to  part  with  his  property,  throug-h  the 
fraud  of  another,  under  the  color  or  g-uise  of  a  con- 
tract, he  has  the  rig-ht,  upon  discovering-  the  fraud,  to 
rescind,  and  reclaim  his  property,  unless  it  has  passed 
into  the  hands  of  a  bona  fide  holder.  Theg-eneral  rule 
also  sustained  by  the  authorities  is  that  a  bank  intrusted 
with  a  collection  of  a  claim  cannot  hold  the  proceeds 
thereof  ag-ainst  the  owner  if,  at  the  time  of  receiving- 
the  claim  for  collection,  the  bank  was  insolvent,  and 
its  officers  or  ag-ents  were  aware  of,  or  had  notice  of, 
its  insolvency.  Railway  Co.  v.  Johnston,  133  U.  S. 
566,  10  Sup.  Ct.  390  ;  Bruner  r.  Bank,  97  Tenn.  540, 
37  S.  W.  286;  Friberg- t;.  Cox,  97  Tenn.  550,  37  S. 
W.  283  ;  Rand.  Com.  Paper  (2d  Ed.)  i^  726.  The  rule 
is  also  well  settled  that  after  a  bank  which  holds  paper 
for  collection  has  suspended,  and  ceased  to  be  a  g-oing- 
concern,  the  general  power  which  it  had  before  its  sus- 
pension to  collect  the  paper  and  ming-le  the  proceeds 
thereof  with  its  own  funds,  and  thereby  create  the  re- 
lation of  debtor  and  creditor  between  it  and  the  person 
whom  it  served  as  collector,  terminates,  and  the  pro- 
ceeds of  any  collection  made,  under  such  circumstances, 
must  be  held  by  the  collecting-  bank  as  a  trustee  of  the 
owner.  Boone,  Banking-,  §  210.  But  this  latter  rule, 
under  the  facts,  can  have  no  application  in  this  action. 
The  ag-reed  statement  of  facts,  which  takes  the  place 
of  all  pleading-s  in  this  case,  does  not,  however,  proceed 


718 


COLLECTIONS 


[vol  I 


Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

upon  the  theory  that  a  fraud  was  perpetrated  upon  ap- 
pellant b}^  the  Citizens'  Bank  in  collecting-  the  note  in 
question.  Therefore  fraud,  under  the  ag-reed  statement, 
which  performs  the  office  of  a  complaint  in  this  cause, 
cannot  be  considered  as  the  gfravamen  of  the  action. 
Appellant  has  the  burden  in  this  case,  and  it  is  required 
to  clearly  and  fully  show  such  facts  as  will  entitle  it  to 
the  relief  in  question  ;  otherwise,  it  will  fail.  The 
rule  applicable  to  a  special  verdict  or  finding*  obtains, 
and  nothing-  under  the  ag-reed  statement  can  be  taken 
by  intendment.  Elliott,  App.  Proc.  §  226.  The  facts 
show  that  at  the  time  the  Citizens'  Bank  received  and 
collected  the  money  and  drew  the  draft  in  favor  of  ap- 
pellant for  the  proceeds  thereof  it  was  still  a  g^oingf 
concern,  and  so  continued  until  its  suspension  on  the 
day  mentioned.  At  the  time  it  made  the  draft,  and  at 
the  time  the  latter  was  presented  for  payment,  it  had 
ample  means  in  the  Merchants'  National  Bank  to  meet 
the  draft;  and  it  fully  appears,  under  the  agfreed  state- 
ment, that  all  of  the  business  relating-  to  the  collection 
of  the  note  was  conducted  in  the  manner  usually  and 
ordinarily  employed  by  banks  in  collecting- claims.  As 
to  whether  the  officers  of  the  bank  were  aware  of,  or 
had  knowledg-e  of,  its  insolvent  condition,  prior  to  the 
day  of  its  suspension,  is  a  matter  which  is  left  wholly 
to  inference.  We  are  not  permitted  to  infer  or  presume 
the  existence  of  facts  essential  to  the  establishment  of 
fraud.  There  is  such  an  absence  of  facts  essential  to 
the  recovery  upon  the  g-rounds  of  fraud  that  this  feature 
of  the  case  may  be  dismissed  from  further  considera- 
tion. 

We  may  recur  to  and  consider  the  question  :  Did 
the  Citizens'  Bank,  in  collecting- the  note,  become  a 
trustee  of  appellant,  so  as  to  impress  the  proceeds, 
when  collected,  with  a  trust  which  may  be  enforced 
ag-ainst  the  money  or  property  in  the  hands  of  the 
receiver  ;  or  is  appellant,  under  the  circumstances, 
simply  a  contract  creditor,  entitled  to  share  in  the 
assets  of  the  insolvent  bank  in  like  manner  as  other 
creditors?     It  must  be  conceded  that  if,  by  the  transac- 


B  CAS]  COLLECTIONS  719 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  Citj' 

tion  of  the  busiaess  in  respect  to  the  collection  of  the 
note,  the  relation  of  creditor  and  debtor  was  created 
between  appellant  and  appellee  bank,  then  the  former 
cannot  maintain  preferential  rights  over  other  creditors, 
whatever  may  have  been  the  orig"in  of  its  claim.  Re- 
ceivers and  assig-nees,  of  course,  take  property  which 
comes  into  their  hands  for  administration  subject  to  all 
leg-al  and  equitable  claims  ;  and  if  appellant,  under  the 
facts,  can  sustain  the  application  of  the  trust  doctrine, 
for  which  it  contends,  its  right  to  enforce  the  same 
against  the  receiver  in  this  action  cannot  be  controverted. 
Lamb  v.  Morris,  118  Ind.  179,  20  N.  K.  746,  and  cases 
there  cited.  The  right  of  a  cestui  que  trust  to  pursue 
and  reclaim  trust  funds  when  the  same  can  be  identified, 
and  the  rights  of  bona  fide  holders  have  not  intervened, 
must  be  conceded.  It  matters  not,  so  far  as  the 
enforcement  of  this  equitable  doctrine  is  concerned, 
whether  the  funds  impressed  with  the  trust  have  been 
traced  into  the  hands  of  an  individual  or  into  the 
possession  of  a  bank.  Pearce  v.  Dill,  149  Ind.  136,  48 
N.  E^.  788  ;  Bank  v.  Peters,  123  N.  Y.  272,  25  N.  E. 
319.  The  rule  which  prevails  and  is  generally  recog- 
nized in  regard  to  bank  deposits  is  that,  where  a  deposit 
is  made  in  a  bank  in  the  ordinary  course  of  business, 
either  of  money,  or- of  drafts  or  checks  received  and 
credited  as  money,  the  title  to  the  money  or  to  the  drafts 
and  checks  deposited,  in  the  absence  of  any  special 
agreement  or  direction,  passes  to  the  bank,  and  the 
relation  of  debtor  and  creditor  arises  between  the 
depositor  and  the  bank,  without  any  element  of  a  trust 
entering  into  the  case.  The  bank,  in  such  cases, 
acquires  title  to  the  money,  checks,  or  drafts  deposited, 
upon  the  implied  agreement  upon  its  part  to  pa}^  full 
consideration  for  the  same  when  called  upon  by  the 
depositor  in  the  usual  course  of  business.  Wasson  v. 
Lamb,  120  Ind.  514,  22  N.  E.  729;  Bank  r.  Acoam. 
125  Ind.  584,  25  N.  E.  713  ;  Lamb  v.  Morris,  supra  ; 
Harrison  v.  Wright,  100  Ind.  515  ;  McLain  v.  Wallace, 
103  Ind.  562,  5  N.  E.  911  ;  Cragie  v.  Hadley,  99  N.  Y. 
131,  1  N.    P).  537.     Reducing   the  facts    in  the  case  at 


720 


COLLECTIONS 


[vol  r 


Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

bar  to  a  minimum,  they  disclose  that  appellant  and 
appellee  bank  were  each  eno-ag-ed  in  doing-  a  g-eneral 
banking-  business,  the  former  in  Illinois  and  the  latter 
in  Indiana.  The  note  was  indorsed,  and  sent  for  collec- 
tion by  the  former  to  the  latter,  with  the  g-eneral  direc- 
tion to  collect  and  remit.  The  latter,  it  appears,  at  the 
time  it  received  the  paper  and  collected  it,  was  insolvent, 
])ut  was  still  a  g-oing-  concern,  eng-ag-ed  in  its  usual 
business  of  banking-.  The  fact  as  to  whether  its  officers 
or  agents  had  notice,  at  the  time  the  collection  was 
made,  that  the  institution  was  insolvent,  and  would  be 
compelled  in  the  near  future  to  suspend  business  on 
account  of  its  insolvency,  is  not  expressly  disclosed  by 
the  ag-reed  statement.  The  note,  it  seems,  was  paid 
by  means  of  a  check  drawn  by  its  payee  upon  the  collect- 
ing- bank,  of  which  such  payee  was  a  depositor,  and 
the  proceeds  were  remitted  to  appellant  by  means  of  a 
sig-ht  draft  drawn  by  appellee  upon  a  corresponding- 
bank.  All  of  the  acts  of  the  collecting-  bank  in  making- 
the  collection,  it  appears,  were  compatible  with  the 
usual  and  ordinary  methods  employed  by  banks  in  the 
collections  of  similar  claims.  The  remittance  by  draft 
on  the  bank  in  question  is  shown  to  have  been  in  accord 
with  the  usual  custom  of  the  Citizens'  Bank  in  re- 
mitting- money  collected  by  it  for  customers  residing 
west  of  Union  City.  The  draft,  which  represented  the 
amount  arising-  out  of  the  collection  of  the  note,  it 
seems,  was  received  and  forwarded  by  appellant  for 
payment,  and  the  only  thing-  which  intervened  to  pre- 
vent the  payment  thereof  was  the  subsequent  failure 
and  suspension  of  the  collecting'  bank.  Certainly  it 
cannot  be  asserted  that  these  facts  are  sufficient  to 
establish  a  case  for  the  intervention  of  equity  in  the 
enforcement  of  the  trust.  The  entire  business  of  col- 
lecting- and  remitting-  the  amount  of  the  note  was 
transacted  by  means  of  the  check  and  draft,  no  money 
being-  actually  received  by  the  collecting-  bank.  The 
whole  business  can  be  said  to  have  been  a  paper  trans- 
action, and  there  is  nothing-  to  show  that  in  the  deal- 
ings   between   the   two    banks    it    was    understood   or 


B  CAs]  COIvIvECTlONS  721 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

intended  that  the  identical  money,  when  collected,  was 
to  be  remitted.  The  fact  that  appellant  accepted  the 
sigfht  draft,  and  forwarded  the  same  for  payment,  is  an 
important  factor  to  show  that  it  approved  the  method 
emplo3'ed  by  the  collecting*  bank  in  remitting-  the  pro- 
ceeds of  the  collection  made,  and  that  fact  alone  may  be 
considered  as  showing-  that  appellant,  in  placing-  the 
note  for  collection,  did  not  contemplate  or  intend  that 
the  remittance  of  the  money  should  be  made  otherwise 
than  it  was  ;  and,  by  accepting-  the  draft  without 
objections,  it  must  be  deemed  to  have  ratified  the  act  of 
the  collecting-  bank  in  remitting-  the  money  by  that 
method.     Rathbun  v.   Steamboat  Co.,  76  N.  Y.  376. 

The  Citizens'  Bank,  as  we  have  seen,  was  a  depositor 
of  the  Merchants'  National  Bank  of  Cincinnati,  and  as. 
between  these  two  banks,  in  reg-ard  to  the  funds  of  the 
former  on  deposit  in  the  latter,  the  relation  of  debtor 
and  creditor  certainly  existed.  The  draft  on  the  latter 
bank,  in  favor  of  appellant,  in  the  event  it  was  paid> 
w^ould  serve  to  reduce  the  indebtedness  which  the 
Citizens'  Bank  held  ag-ainst  the  Merchants'  National 
Bank.  The  note,  as  stated,  was  paid  by  means  of  a: 
check  drawn  by  the  maker  of  the  paper  upon  the  col- 
lecting-bank ;  and  if  anything-,  under  the  circumstances^ 
can  be  said  to  have  been  set  apart  by  the  collecting-  bank 
to  appellant,  it  was  at  amount  of  the  former's 
indebtedness  to  the  payee  of  the  note  as  a  depositor 
equal  to  the  amount  of  the  pa3^ee's  check,  which  was 
accepted  in  payment  of  the  note.  Nothing-  to  the  con- 
trary appearing-,  appellant  bank  is  presumed  to  have 
sent  the  collection  to  appellee  bank,  and,  at  least 
impliedly,  consented  that  it  be  collected,  and  the  pro- 
ceeds remitted,  according-  to  the  usual  and  ordinary 
business  methods  employed  by  banks  in  making-  col- 
lections. Morse,  Banks,  §  220.  The  usual  and 
ordinary  custom,  by  which  banks  are  g-enerally  con- 
trolled in  collecting-  paper,  does  not  require  them  to 
hold  the  money  collected  separate  and  apart  from  its. 
own  funds,  and  remit  the  identical  money  collected. 
The   collecting-    bank,  g-enerally    speaking-,  in    the  ab- 

B  CAS— 46 


722  COLLECTIONS  [vol  I 

Union  Nat.  Bank  v.  Citizens'  Bank  of  Union  City 

sence  of  any  arrang-ement  to  the  contrary,  becomes  the 
owner  of  the  money  collected,  and  is  under  an  oblig-a- 
tion  to  pay  or  remit,  not  the  very  money  received,  but 
an  amount  of  equal  value  ;  and,  while  a  collecting- 
bank,  it  is  true,  receives  the  paper  or  claim  for  collec- 
tion as  the  ag-ent  of  the  holder.  Still,  when  the  money 
is  collected,  and  the  proper  credit  g-iven  to  such  holder 
-or  owner,  then,  as  a  general  rule,  the  relation  of  debtor 
and  creditor  is  created  between  the  parties,  and  the 
relation  of  trustee  and  cestui  que  trust  does  not  arise. 
This  seems  to  be  the  prevailing-  doctrine,  and  is  well 
supported  by  the  authorities.  First  Nat.  Bank  of 
Crown  Point  v.  First  Nat.  Bank  of  Richmond,  76  Ind. 
561  ;  Morse,  Banks,  §  248  ;  Boone,  Bankingr,  §  210, 
and  cases  cited  in  footnote  3  ;  Bank  v.  Rushmore,  28 
111.  463  ;  Tinkham  v.  Heyworth,  31  111.  519  ;  Akin  v. 
Jones,  93  Tenn.  353,  27  S.  W.  669  ;  Marine  Bank  v. 
Fulton  Bank,  2  Wall.  252  ;  Brig-gs  v.  Bank,  89  N.  Y. 
182;  People  v.  Merchants'  &  Mechanics'  Bank,  78  N. 
Y.  269  ;  People  v.  City  Bank,  93  N.  Y.  582  ;  Bank  v. 
Davis,  114  N.  C.  343,  19  S.  E.  280  ;  Klepper  v.  Cox, 
-97  Tenn.  534,  37  S.  W.  284  ;  Howard  v.  Walker,  92 
Tenn.  452,  21  S.  W.  897  ;  First  Nat.  Bank  v.  Wil- 
mington &  W.  R.  Co.,  23  C.  C.  A.  200,  77  Fed.  401; 
Bank  v.  Dowd,  38  Fed.  172  ;  Bank  v.  Hubbell,  117  N. 
Y.  384,  22  N.  E.  1031.  Any  ag-reement  or  course  of 
dealing-  upon  the  part  of  a  collecting-  bank,  whereby  it 
appears  that  the  latter  was  at  liberty  to  use  the  money 
collected  as  its  own,  and  substitute  its  own  obligation 
instead  thereof,  must  necessarily  destroy  all  features 
or  elements  of  a  trust  in  any  particular  case.  Akin  v. 
Jones,  supra.  There  can  be  no  doubt,  w^e  think,  under 
the  facts,  but  what  it  must  have  been  understood  b\^ 
both  of  the  banks  that,  when  the  note  was  collected, 
•  appellant  was  to  receive  a  credit  upon  the  proceeds 
'Collected  ;  and  that  appellee,  as  the  collecting-  bank, 
mig-ht  use  the  money  in  its  own  business  in  like  man- 
ner as  it  could  funds  deposited  by  its  customers  in  the 
".usual  and  ordinary  course  of  business.  Such  deposits, 
we  have  seen,  create  nothing-  more  than  the  relation  of 


B  CAS]  COIvIvECTlONS  723 

Note 

debtor  and  creditor.  In  the  absence  of  a  knowledg-e 
upon  the  part  of  the  officers  or  ag-ents  of  appellee  bank 
of  its  being-  hopelessly  insolvent  at  the  time  the  note 
was  received  and  collected,  its  rig-ht  or  power  to 
ming"le  the  proceeds  of  the  note,  when  collected,  as  its 
own,  with  other  funds  of  the  bank,  cannot  be  deemed 
to  have  been  terminated,  and  no  wrong,  under  the 
circumstances,  can  be  imputed  to  the  bank  for  its  acts 
in  collecting-  and  remitting-  the  money  by  the  methods 
stated.  Surely,  unless  it  can  be  held,  under  the  par- 
ticular circumstances  in  this  case,  that  it  was  wrong-ful 
for  the  Citizens'  Bank  to  collect  the  note,  and  inter- 
ming-le  the  proceeds  with  the  funds  of  the  bank  as  its 
own,  appellant  can  have  no  preferential  rig-ht  over  other 
creditors  of  the  insolvent  institution.  Courts  cannot 
recog-nize  a  mere  claim  or  debt  as  a  trust  in  order  to 
g-ive  it  a  preference  over  other  creditors  of  an  insolvent 
person  or  corporation. 

We  have  not  considered  the  question  presented  by 
appellee  to  the  effect  that,  if  it  were  conceded  that  a 
trust  was  impressed  in  the  first  instance  upon  the  funds 
arising-  out  of  the  collection,  such  funds,  however,  were 
subsequently  so  dissipated  by  the  bank  that  no  part 
thereof  can  be  traced  to  and  identified  in  the  hands  of 
the  receiver  ;  hence  an  enforcement  of  the  trust  must 
fail.  We  conclude  that,  under  the  facts,  the  relation 
of  trustee  and  cestui  que  trust  was  not  created  between 
the  banks  in  question,  but  simply  that  of  debtor  and 
creditor  ;  and  therefore  appellant  is  not  entitled  to  be 
preferred  in  its  claim  over  the  rig-hts  of  other  creditors. 
The  judgment  is  therefore  affirmed. 


NOTE. 

Collections— Relation  of  Bank  and  Depositor. — In  addition  to  the 
authorities  cited  in  the  opinion  in  the  principal  case  as  supporting- 
the  doctrine  enunciated  in  the  headnote,  see  Reeves  v.  State  Bank, 
8  Ohio  St.  65  ;  Commercial  Nat.  Bank  v.  Armstrong-,  148  U.  S.  50  ; 
Levi  V.  National  Bank,  5  Dill.  (U.  S.)  104;  Hosmer  t'.  Jewett,  6  Ben. 
(U.  S.)  208. 


724  DIVIDENDS  [vol  I 

McDonald  v.  Williams 


McDonald 

V. 

Williams   ct  a  I. 

(Supreme  Court  of  the  United  States,  May  15,  1899.) 

Paying  Dividends  out  of  Capital — Right  of  Receiver  to  Recover.* — 

The  'receiver  of  a  national  bank  cannot  recover  a  dividend  paid 
not  at  all  out  of  profits,  but  entirely  out  of  the  capital,  when  the 
stockholder  receiving-  such  dividend  acted  in  g-ood  faith,  believing- 
the  same  to  be  paid  out  of  profits,  and  when  the  bank,  at  the  time 
such  dividend  was  declared  and  paid,  was  not  insolvent. 

Heard  on  Certificate  from  the  Circuit  Court  of  Ap- 
peals for  the  Second  Circuit. 

This  suit  was  commenced  in  the  circuit  court  of  the 
United  States  for  the  Southern  district  of  New  York. 
It  was  brouofht  by  the  plaintiff,  as  receiver 
of  the  Capital  National  Bank  of  Lincoln, 
Neb.,  for  the  purpose  of  recovering-  from  the  defendants, 
who  were  stockholders  in  the  bank,  the  amount  of 
certain  dividends  received  by  them  before  the  appoint- 
ment of  a  receiver. 

Upon  the  trial  of  the  case  the  circuit  court  decreed  in 
favor  of  the  plaintiff  for  the  recovery  of  a  certain  amouut. 
The  defendants  appealed  from  the  decree  because  it  was 
not  in  their  favor,  and  the  plaintiff  appealed  from  it 
because  the  recovery  provided  for  in  the  decree  was  not 
as  much  as  he  claimed  to  be  entitled  to.  Upon  the 
argfument  of  the  appeal  in  the  circuit  court  of  appeals 
certain  questions  of  law  were  presented,  as  to  which 
that  court  desired  the  instruction  of  this  court  for  their 
proper  decision. 

It  appears  from  the  statement  of  facts  made  by  the 
court  that  the  bank  suspended  payment  in  January, 
1893,  in  a  condition  of  hopeless   insolvency,  the  stock- 

*See  notes  at  end  of  case. 


B  CAS]  DIVIDENDS  725 

McDonald  v.  Williams 

holders,  including' the  defendants,  having"  been  assessed 
to  the  full  amount  of  their  respective  holding's  ;  but  the 
money  thus  obtained,  added  to  the  amount  realized  from 
the  assets,  will  not  be  sufficient,  even  if  all  dividends 
paid  during"  the  bank's  existence  were  repaid  to  the 
receiver,  to  pay  75  per  cent,  of  the  claims  of  the  bank's 
creditors. 

This  suit  was  broug-ht  to  compel  the  repayment  of 
certain  dividends  paid  by  the  bank  to  the  defendants  on 
that  part  of  the  capital  of  the  bank  represented  by  their 
stock  of  the  par  value  of  $5,000,  on  the  g-round,  alleg-ed 
in  the  bill,  that  each  of  said  dividends  was  fraudulently 
declared  and  paid  out  of  the  capital  of  the  bank,  and  not 
out  of  net  profits. 

A  list  of  the  dividends,  and  the  amount  thereof,  paid 
by  the  bank  from  January,  1885,  to  July,  1892,  both 
inclusive,  is  contained  in  the  statement  ;  and  it  is  added 
that  all  dividends,  except  the  last  (July  12,  1892),  were 
paid  to  the  defendant  Williams,  a  stockholder  to  the 
amount  of  $5,000,  from  the  organization  of  the  bank. 
The  last  dividend  was  paid  to  the  defendant  Dodd,  who 
boug-ht  Williams'  stock,  and  had  the  same  transferred 
to  his  own  name  December  16,  1891. 

When  the  dividend  of  January  6,  1889,  was  declared 
and  paid,  and  when  each  subsequent  dividend,  down  to 
and  including-  July,  1891,  was  declared  and  paid,  there 
were  no  net  profits.  The  capital  of  the  bank  was 
impaired,  and  the  dividends  were  paid  out  of  the  capital, 
but  the  bank  was  still  solvent.  When  the  dividends  of 
January  and  July,  1892,  were  declared  and  paid,  there 
were  no  net  profits,  the  capital  of  the  bank  was  lost, 
and  the  bank  actually  insolvent. 

The  defendants,  neither  of  whom  was  an  officer  or 
director,  were  ig-norant  of  the  financial  condition  of  the 
bank,  and  received  the  dividends  in  g-ood  faith,  relying" 
on  the  officers  of  the  bank,  and  believing-  the  dividends 
were  coming"  out  of  the  profits. 

Upon  these  facts  the  court  desired  the  instruction  of 
this  court  for  the  proper  decision  of  the  following" 
questions. 


726 


DIVIDENDS 

McDonald  v.  Williams 


[VOIv  I 


First  question  :  Can  the  receiver  of  a  national  bank 
recover  a  dividend  paid  not  at  all  out  of  profits,  but 
entirely  out  of  the  capital,  when  the  stockholder  receiv- 
ing- such  dividend  acted  in  g-ood  faith,  believing"  the 
same  to  be  paid  out  of  profits,  and  when  the  bank,  at 
the  time  such  dividend  was  declared  and  paid,  was  not 
insolvent  ? 

Second  question  :  Has  a  United  States  circuit  court 
jurisdiction  to  entertain  a  bill  in  equity  brought  by  a 
receiver  of  a  national  bank  ag-ainst  stockholders  to 
recover  dividends  which,  as  claimed,  were  improperly 
paid,  when  such  suit  is  brougfht  against  two  or  more 
stockholders,  and  embraces  two  or  more  dividends,  and 
when  the  objection  that  there  is  an  adequate  remedy  at 
law  is  raised  by  the  answer  ? 

Edxvard  Winshnv  Pai^e,  for  appellant. 
Theodore  De  Witt,  for  appellees. 

Mr.  Justice  Peckham,  after  stating-  the  facts, 
delivered  the  opinion  of  the  court. 

It  will  be  noticed  that  the  first  question  is  based  upon 
the  facts  that  the  bank,  at  the  time  the  dividends  were 
declared  and  paid,  was  solvent,  and  that  the  stockhold- 
ers receiving"  the  dividends  acted  in  g^ood  faith,  and 
believed  that  the  same  were  paid  out  of  the  profits  made 
by  the  bank. 

The  sections  of  the  Revised  Statutes  which  are 
applicable  to  the  questions  involved  herein  are  set  forth 
in  the  marg-in.* 

*Sec.  5199.  The  directors  of  any  association  may,  semi-annually, 
declare  a  dividend  of  so  much  of  the  net  profits  of  the  association 
as  the_Y  shall  judg-e  expedient;  but  each  association  shall,  before 
the  declaration  of  a  dividend,  carry  one-tenth  part  of  its  net  profits 
of  the  preceding-  half  year  to  its  surplus  fund  until  the  same  shall 
amount  to  twenty  per  centum  of  its  capital  stock. 

Section  520-1.  No  association,  or  an}'  member  thereof,  shall, 
during  the  time  it  shall  continue  its  banking  operations,  withdraw, 
or  permit  to  be  withdrawn,  either  in  the  form  of  dividends  or  other- 
wise, any  portion  of  its  capital.  If  losses  have  at  any  time  been 
sustained  by  any  such  association,  equal  to  or  succeeding  its  undi- 
vided profits  then  on  hand,  no  dividend  shall  be  made;  and  no 
dividend  shall  ever  be  made  by  any  association,  while  it  continues 
its  banking  operations,  to  an  amount  greater   than  its   net   profits 


B  CAS]  DIVIDENDS  727 

McDonald  v.  Williams 

The  complainant  bases  his  rig-ht  to  recover  in  this 
suit  upon  the  theory  that  the  capital  of  the  corporation 
was  a  trust  fund  for  the  payment  of  creditors  entitled 
to  a  portion  thereof,  and,  having-  been  paid  in  the  way 
of  dividends  to  the  shareholders,  that  portion  can  be 
recovered  back  in  an  action  of  this  kind  for  the  purpose 
of  paying  the  debts  of  the  corporation.  He  also  bases 
his  right  t©  recover  upon  the  terms  of  section  5204  of 
the  Revised  Statutes. 

We  think  the  theory  of  a  trust  fund  has  no  applicatiorr 
to  a  case  of  this  kind.  When  a  corporation  is  solvent, 
the  theory  that  its  capital  is  a  trust  fund  upon  which' 
there  is  any  lien  for  the  payment  of  its  debts  has  in  fact 
very  little  foundation.  No  general  creditor  has  any  lien 
upon  the  fund  under  such  circumstances,  and  the  right 
of  the  corporation  to  deal  with  its  property  is  absolute, 
so  long  as  it  does  not  violate  its  charter  or  the  law 
applicable  to  such  corporation. 

In  Graham  v.  Railroad  Co.,  102  U.  S.  148,  161,  it 
was  said  by  Mr.  Justice  Bradley,  in  the  course  of 
his    opinion,    that:      "When    a    corporation    becomes 

then  on  hand,  deducting-  therefrom  its  losses  and  bad  debts.  All 
debts  due  to  any  associations,  on  which  interest  is  past  due  and 
unpaid  for  a  period  of  six  months,  unless  the  same  are  well  secured, 
and  in  process  of  collection,  shall  be  considered  bad  debts  within 
the  meaning-  of  this  section.  But  nothing-  in  this  section  shall 
prevent  the  reduction  of  the  capital  stock  of  the  association  under 
section  fifty-one  hundred  and  forty-three. 

Sec.  5205  [as  amended  by  section  4  of  the  act  approved  June  30, 
1876;  19  St.  63].  Every  association  which  shall  have  failed  to  pay 
up  its  capital  stock,  as  required  by  law,  and  every  association  whose 
capital  stock  shall  have  become  impaired  by  losses  or  otherwise, 
shall,  within  three  months  after  receiving-  notice  thereof  from  the 
comptroller  of  the  currency,  pay  the  deficiency  in  the  capital  stock, 
by  assessment  upon  the  shareholders  pro  rata  for  the  amount  of 
capital  stock  held  by  each  ;  and  the  treasurer  of  the  United  States, 
shall  withhold  the  interest  upon  all  bonds  held  by  him  in  trust  for 
any  such  association,  upon  notification  from  the  comptroller  of  the- 
currency,  until  otherwise  notified  by  him.  If  any  such  association 
shall  fail  to  pay  up  its  capital  stock,  and  shall  refuse  to  g-o  into 
liquidation,  as  provided  by  law,  for  three  months  after  receiving- 
notice  from  the  comptroller,  a  receiver  maj'  be  appointed  to  close 
up  the  business  of  the  association,  according-  to  the  provisions  of 
section  fifty-two  hundred  and  thirty-four  ;  and  provided,  that  if  any 
shareholder  or  shareholders  of  such  bank  shall  neglect  or  refuse, 
after  three  months'  notice,  to  pay  the  assessment,  as  provided  iix 


728 


DIVIDENDS 

McDonald  v.  Williams 


[vol  I 


insolvent,  it  is  so  far  civilly  dead  that  its  property  may 
be  administered  as  a  trust  fund  for  the  benefit  of  its 
stockholders  and  creditors.  And  a  court  of  equity,  at 
the  instance  of  the  proper  parties,  will  then  make  those 
funds  trust  funds  which  in  other  circumstances  are  as 
much  the  absolute  property  of  the  corporation  as  any 
man's  property  is  his." 

And  in  Hollins  v.  Iron  Co.,  150  U.  S.  371,  383,  14 
Sup.  Ct.  127,  it  was  stated  by  Mr.  Justice  Brewer, 
in  delivering^  the  opinion  of  the  court,  and  speaking-  of 
the  theory  of  the  capital  of  a  corporation  being-  a  trust 
fund,  as  follows  : 

"In  other  words, — and  that  is  the  idea  which  under- 
lies all  these  expressions  in  reference  to  'trust'  in 
connection  with  the  property  of  a  corporation, — the 
corporation  is  an  entity,  distinct  from  its  stockholders 
.as  from  its  creditors.  Solvent,  it  holds  its  property  as 
:any  individual  holds  his, — free  from  the  touch  of  a 
creditor  who  has  acquired  no  lien  ;  free  also  from  the 
touch  of  a  stockholder  who,  thoug"h  equitably  interested 
in,  has  no  leg-al  rig-ht  to,  the  property.  Becoming- 
insolvent,  the  equitable  interest  of  the  stockholders  in 

this  section,  it  shall  be  the  duty  of  the  board  of  directors  to  cause  a 
sufficient  amount  of  the  capital  stock  of  such  shareholder  or  share- 
holders to  be  sold  at  public  auction  (after  thirty  days'  notice  shall 
be  g'iven  by  posting  such  notice  of  sale  in  the  office  of  the  bank, 
and  by  publishing-  such  notice  in  a  newspaper  of  the  city  or  town 
in  which  the  bank  is  located,  or  in  a  newspaper  published  nearest 
thereto,)  to  make  good  the  deficiency,  and  the  balance,  if  any,  shall 
be  returned  to  such  delinquent  shareholder  or  shareholders. 

Sec.  5140.  At  least  fiftj'  per  centum  of  the  capital  stock  of  every 
association  shall  be  paid  in  before  it  shall  be  authorized  to  com- 
mence business  ;  and  the  remainder  of  the  capital  stock  of  such 
association  shall  be  paid  in  installments  of  at  least  ten  per  centum 
each,  on  the  whole  amount  of  the  capital,  as  frequently  as  one 
installment  at  the  end  of  each  succeeding-  month  from  the  time  it 
shall  be  authorized  by  the  comptroller  of  the  currency  to  commence 
business;  and  the  payment  of  each  installment  shall  be  certified  to 
the  comptroller,  under  oath,  by  the  president  or  cashier  of  the  asso- 
ciation. 

Sec.  5141.  Whenever  any  shareholder,  or  his  assignee,  fails  to 
pay  any  installment  on  the  stock  when  the  same  is  required  by  the 
preceding  section  to  be  paid,  the  directors  of  such  association  may 
sell  the  stock  of  such  delinquent  shareholder  at  public  auction,  hav- 
ing given  three  weeks'  previous  notice  thereof  in  a  newspaper 
published  and  of  general  circulation  in  the  city  or  county  where  the 


B  CAS]  DIVIDENDS  729 

McDonald  v.  Williams 

the  property,  togfether  with  their  conditional  liability 
to  the  creditors,  places  the  property  in  a  condition  of  a 
trust,  first  for  the  creditors,  and  then  for  the  stock- 
holders. Whatever  of  trust  there  is  arises  from  the 
peculiar  and  diverse  equitable  rig-hts  of  the  stock- 
holders, as  ao-ainstthe  corporation,  in  its  property,  and 
their  conditional  liability  to  its  creditors.  It  is  rather 
a  trust  in  the  administration  of  the  assets  after  pos- 
session by  a  court  of  equity,  than  a  trust  attaching-  to 
the  property,  as  such,  for  the  direct  benefit  of  either 
creditor  or  stockholder." 

And  also  : 

"The  officers  of  a  corporation  act  in  a  fiduciary 
capacity  in  respect  to  its  property  in  their  hands,  and 
may  be  called  to  an  account  for  fraud,  or  sometimes 
even  mere  mismanagement  in  respect  thereto  ;  but,  as 
between  itself  and  its  creditors,  the  corporation  is 
simply  a  debtor,  and  does  not  hold  its  property  in  trust, 
or  subject  to  a  lien  in  their  favor,  in  any  other  sense 
than  does  an  individual  debtor.  That  is  certainly  the 
general  rule,  and,  if  there  be  any  exceptions  thereto, 
they  are  not  presented  by  any  of  the  facts  in  this  case. 

association  is  located,  or  if  no  newspaper  is  published  in  said  city 
or  county,  then  in  a  newspaper  published  nearest  thereto,  to  anj' 
person  who  will  pay  the  hig-hest  price  therefor,  to  be  not  less  than 
the  amount  due  thereon,  with  the  expenses  of  advertisement  and 
sale  ;  and  the  excess,  if  any,  shall  be  paid  to  the  delinquent  share- 
holder. If  no  bidder  can  be  found  who  will  pay  for  such  stock  the 
amount  due  thereon  to  the  association,  and  the  cost  of  advertise- 
ment and  sale,  the  amount  previously  paid  shall  be  forfeited  to  the 
association,  and  such  stock  shall  be  sold  as  the  directors  may  order, 
within  six  months  from  the  time  of  such  forfeiture,  and  if  not  sold 
it  shall  be  canceled  and  deducted  from  the  capital  stock  of  the 
association.  If  any  such  cancellation  and  reduction  shall  reduce 
the  capital  of  the  association  below  the  minimum  of  capital  required 
by  law,  the  capital  stock  shall,  within  thirty  days  from  the  date  of 
such  cancellation,  be  increased  to  the  required  amount  ;  in  default 
of  which  a  receiver  may  be  appointed,  according  to  the  provisions 
of  section  fiftj^-two  hundred  and  thirty-four,  to  close  up  the  business 
of  the  association. 

Sec.  5151.  The  shareholders  of  every  national  banking  associa- 
tion shall  be  held  individually  responsible,  equally  and  ratably,  and 
not  one  for  another,  for  all  contracts,  debts  and  eng-agements  of 
such  association,  to  the  extent  of  the  amount  of  their  stock  therein, 
at  the  par  value  thereof,  in  addition  to  the  amount  vested  in  such 
shares.     [The  balance  of  this  section  is  immaterial.] 


730 


DIVIDENDS 

McDonald  v.  Williams 


[vol  I 


Neither  the  insolvency  of  the  corporation,  nor  the 
execution  of  an  illeg-al  trust  deed,  nor  the  failure  to 
collect  in  full  all  stock  subscriptions,  nor  all  together, 
crave  to  these  simple-contract  creditors  any  lien  upon 
the  property  of  the  corporation,  nor  charged  any  direct 
trust  thereon." 

Other  cases  are  cited  in  the  opinion  as  holding  the 
same  doctrine. 

In  Railway  Co.  r.  Ham,  114  U.  S.  587,  594,  5  Sup. 
Ct.  1081,  Mr.  Justice  Gray,  in  delivering  the  opinion 
oi  the  court,  said  : 

"The  property  of  a  corporation  is  doubtless  a  trust 
fund  for  the  payment  of  its  debts,  in  the  sense  that 
when  the  corporation  is  lawfully  dissolved,  and  all  its 
business  wound  up,  or  when  it  is  insolvent,  all  its 
creditors  are  entitled,  in  equity,  to  have  their  debts 
paid  out  of  the  corporate  property  before  any  distribu- 
tion thereof  among  the  stockholders.  It  is  also  true, 
in  the  case  of  a  corporation  as  in  that  of  a  natural 
person,  that  any  conveyance  of  property  of  the  debtor, 
without  authority  of  law,  and  in  fraud  of  existing  cred- 
itors, is  void  as  against  them." 

These  cases,  while  not  involving  precisely  the  same 
question  now  before  us,  show  there  is  no  well-defined 
lien  of  creditors  upon  the  capital  of  a  corporation  while 
the  latter  is  a  solvent  and  going  concern,  so  as  to  permit 
creditors  to  question  at  the  time  the  disposition  of  the 
property. 

The  bank,  being  solvent,  although  it  paid  its  divi- 
dends out  of  capital,  did  not  pay  them  out  of  a  trust 
fund.  Upon  the  subsequent  insolvency  of  the  bank 
and  the  appointment  of  a  receiver,  an  action  could  not 
be  brought  by  the  latter  to  recover  the  dividends  thus 
paid,  on  the  theory  that  the}^  were  paid  from  a  trust 
fund,  and   therefore  were  liable    to  be  recovered  back. 

It  is  contended  on  the  part  of  the  complainant,  how- 
ever, that,  if  the  assets  of  the  bank  are  impressed  with 
a  trust  in  favor  of  its  creditors  when  it  is  insolvent, 
they  must  be  impressed  with  the  same  trust  when  it 
is  solvent ;  that  the  mere  fact    that   the    value    of    the 


B  CAS]  DIVIDENDS  731 

McDonald  v.  Williams 

assets  of  the  corporation  has  sunk  below  the  amount  of 
its  debts,  although  as  yet  unknown  to  anybody,  cannot 
possibly  make  a  new  contract  between  the  corporation 
and  its  creditors.  In  case  of  insolvency,  however,  the 
recovery  of  the  money  paid  in  the  ordinary  way  with- 
out condition  is  allowed,  not  on  the  ground  of  contract 
to  repay,  but  because  the  money  thus  paid  was  in 
equity  the  money  of  the  creditor  ;  that  it  did  not  belong- 
to  the  bank,  and  the  bank,  in  paying-,  could  bestow  no 
title  in  the  money  it  paid  to  one  who  did  not  receive  it 
bona  fide  and  for  value.  The  assets  of  the  bank  while 
it  is  solvent  may  clearly  not  be  impressed  with  a  trust 
in  favor  of  creditors,  and  yet  that  trust  may  be  created 
by  the  very  fact  of  the  insolvency,  and  the  trust 
enforced  by  a  receiver  as  the  representative  of  all  the 
creditors.  But  we  do  not  wish  to  be  understood  as 
deciding-  that  the  doctrine  of  a  trust  fund  does  in  truth 
extend  to  a  shareholder  receiving-  a  dividend,  in  good 
faith  believing-  it  is  paid  out  of  profits,  even  though 
the  bank  at  the  time  of  the  payment  be  in  fact  insol- 
vent. That  question  is  not  herein  presented  to  us,  and 
we  express  no  opinion  in  regard  to  it.  We  only  say 
that,  if  such  a  dividend  be  recoverable,  it  would  be  on 
the  principle  of  a  trust  fund. 

Insolvency  is  a  most  Important  and  material  fact, 
not  only  with  individuals  but  with  corporations  ; 
and  with  the  latter,  as  with  the  former,  the  mere 
fact  of  its  existence  may  change  radically  and 
materially  its  rights  and  obligations.  Where  there 
is  no  statute  providing  what  particular  act  shall 
be  evidence  of  insolvency  or  bankruptcy,  it  may  be, 
and  it  sometimes  is,  quite  difficult  to  determine 
the  fact  of  its  existence  at  any  particular  period 
of  time.  Although  no  trust  exists  while  the  corpora- 
tion is  solvent,  the  fact  which  creates  the  trust  is  the 
insolvency,  and,  when  that  fact  is  established,  at  that 
instant  the  trust  arises.  To  prove  the  instant  of 
creation  may  be  almost  impossible,  and  yet  its  existence 
at  some  time  may  very  easily  be  proved.  What  the 
precise  nature  and  extent   of  the    trust  is,  even  in  such 


732 


DIVIDENDS 
McDonald  v.  Williams 


[vol  I 


case,  may  be  somewhat  difficult  to  accurately  define, 
but  it  may  be  admitted,  in  some  form,  and  to  some 
extent,  to  exist  in  a  case  of  insolvency. 

Hence  it  must  be  admitted  that  the  law  does  create  a 
distinction  between  solvency  and  insolvency,  and  that 
from  the  moment  when  the  latter  condition  is  estab- 
lished the  leg-ality  of  acts  thereafter  performed  will  be 
decided  b}"  very  diiferent  principles  than  in  a  case  of 
solvency.  And  so  of  acts  committed  in  contemplation 
of  insolvency.  The  fact  of  insolvency  must  be  proved, 
in  order  to  show  the  act  was  one  committed  in  contem- 
plation thereof. 

Without  reference  to  the  statute,  therefore,  we  think 
the  rig-ht  to  recover  the  dividend  paid  while  the  bank 
was  solvent  would  not  exist. 

But  it  is  urg-ed  on  the  part  of  the  complainant  that 
section  5204  of  the  Revised  Statutes  makes  the  payment 
of  a  dividend  out  of  capital  illeg^al  and  tdlra  vires  of 
the  corporation,  and  that  money  thus  paid  remains  the 
property  of  the  corporation,  and  can  be  followed  into 
the  hands  of  anv  volunteer. 

The  section  provides  that  "no  association,  or  any 
member  thereof,  shall,  during-  the  time  itshall  continue 
its  banking-  operations,  withdraw,  or  permit  to  be  with- 
drawn, either  in  the  form  of  dividends  or  otherwise,  any 
portion  of  its  capital."  What  is  meant  by  this  lan- 
g'uagfe?  Has  a  shareholder  withdrawn  or  permitted  to 
be  withdrawn,  in  the  form  of  a  dividend,  any  portion  of 
the  capital  of  the  bank,  when  he  has  simply  and  in  g-ood 
faith  received  a  dividend  declared  by  a  board  of 
directors  of  which  he  was  not  a  member,  and  which 
dividend  he  honestly  supposed  was  declared  only  out  of 
profits  ?  Does  he,  in  such  case,  within  the  meaning-  of 
the  statute,  withdraw  or  permit  to  be  withdrawn  a 
portion  of  the  capital  ?  The  law  prohibits  the  making 
of  a  dividend  by  a  national  bank  from  its  capital,  or  to 
an  amount  g-reater  than  its  net  profits  then  on  hand, 
deducting-  therefrom  its  losses  and  bad  debts.  The 
fact  of  the  declaration  of  a  dividend  is,  in  effect,  the 
assertion  by  the  board  of  directors  that  the  dividend  is 


B  CAS]  DIVIDENDS  733 

McDonald  v.  Williams 

made  out  of  profits.  BelievintJ-  that  the  dividend  is 
thus  made,  the  shareholder,  in  g-ood  faith,  receives  his 
portion  of  it.  Can  it  be  said  that  in  thus  doing-  he 
withdraws,  or  permits  to  be  withdrawn,  any  portion  of 
the  capital  of  the  corporation  ?  We  think  he  does  not 
withdraw  it  by  the  mere  reception  of  his  proportionate 
part  of  the  dividend.  The  withdrawal  was  initiated  by 
the  declaration  of  the  dividend  by  the  board  of  directors, 
and  was  consummated  on  their  part  when  they  permitted 
payment  to  be  made  in  accordance  with  the  declaration. 
We  think  this  lang-uag-e  implies  some  positive  or  affirm- 
ative act  on  the  part  of  the  shareholder  by  w^hich  he 
knowing-ly  withdraws  the  capital  or  some  portion 
thereof,  or  with  knovvledg-e  permits  some  act  which 
results  in  the  withdrawal,  and  which  mig-ht  not  have 
been  so  withdrawn  without  hisaction.  The  permitting- 
to  be  withdrawn  cannot  be  founded  upon  the  simple 
receipt  of  a  dividend  under  the  facts  stated  above. 

One  is  not  usually  said  to  permit  an  act  which  he  is 
wholly  ig-norantof  ;  nor  would  he  be  said  to  consent  to 
an  act,  of  the  commission  of  which  he  had  no  knowledg-e. 
Ought  it  to  be  said  that  he  withdraws  or  permits  the 
withdrawal  by  ig-norantly,  yet  in  entire  g-ood  faith, 
receiving-  his  proportionate  part  of  the  dividend  ?  Is 
each  shareholder  an  absolute  insurer  that  dividends  are 
paid  out  of  profits  ?  Must  he  employ  experts  to  examine 
the  books  of  the  bank  previous  to  receiving-  each  divi- 
dend ?  Few  shareholders  could  make  such  examina- 
tion themselves.  The  shareholder  takes  the  fact  that 
a  dividend  has  been  declared  as  an  assurance  that  it 
was  declared  out  of  profits  and  not  out  of  capital, 
because  he  knows  that  the  statute  prohibits  any 
declaration  of  a  dividend  out  of  capital.  Knowing-  that 
a  dividend  from  capital  would  be  illeg-al,  he  would 
receive  the  dividend  as  an  assurance  that  the  bank  was 
in  a  prosperous  condition  and  with  unimpaired  capital. 
Under  such  circumstances,  we  cannot  think  that  con- 
g-ress  intended,  by  the  use  of  the  expression,  "withdraw 
or  permit  to  be  withdrawn,  either  in  the  form  of  divi- 
dends, or   otherwise,"  any    portion   of    its    capital,   to 


734  DIVIDENDS  [vol,  I 

McDonald  v.  Williams 

include  the  case  of  the  passive  receipt  of  a  dividend  by 
a  shareholder  in  the  doiut  iidc  belief  that  the  dividend 
was  paid  out  of  profits,  while  the  bank  was  in  fact 
solvent.  We  think  it  would  be  an  improper  construc- 
tion of  the  lauo-uag-e  of  the  statute  to  hold  that  it  covers 
such  a  case. 

We  are  streng-thened  in  our  views  as  to  the  proper 
construction  of  this  act  by  reference  to  some  of  its 
other  sections.  The  payment  of  the  capital  within  a 
certain  time  is  provided  for  by  sections  5140  and  5141. 
Section  5151  provides  for  the  individual  responsibility 
of  each  shareholder  to  the  extent  of  his  stock  at  the  par 
value  thereof,  in  addition  to  the  amount  invested  therein. 
(These  shareholders  have  already  been  assessed  under 
this  section.)  And  section  5205  provides  for  the  case 
of  a  corporation  whose  capital  shall  have  become 
impaired  by  losses  or  otherwise,  and  proceeding's  may 
be  taken  by  the  association  ag^ainst  the  shareholders  for 
the  payment  of  the  deficiency  in  the  capital  within  three 
months  after  receiving-  notice  thereof  from  the  comp- 
troller. These  various  provisions  of  the  statute  impose 
a  very  severe  liability  upon  the  part  of  holders  of 
national  bank  stock,  and,  while  such  provisions  are  evi- 
dently imposed  for  the  purpose  of  securing-  reasonable 
safety  to  those  who  deal  wnth  the  banks,  we  may 
nevertheless  say,  in  view  of  this  whole  system  of  lia- 
bility, that  it  is  unnecessar3%  and  that  it  would  be  an 
unnatural  construction  of  the  lang-uag^eof  section  5204, 
to  hold  that,  in  a  case  such  as  this,  a  shareholder,  bv 
the  receipt  of  a  dividend  from  a  solvent  bank,  had 
withdrawn,  or  permitted  to  be  withdrawn,  any  portion 
of  its  capital. 

We  may  concede  that  the  directors  who  declared  the 
dividend  under  such  circumstances  violated  the  law, 
and  that  their  act  was  therefore  illeg^al  ;  but  the 
reception  of  the  dividend  by  the  shareholder  in  g-ood 
faith,  as  mentioned  in  the  question,  was  not  a  wrong-ful 
or  desig-nedly  improper  act.  Hence  the  liability  of  the 
shareholder  should  not  be  enlarg-ed  by  reason  of  the 
conduct   of  the   directors.     They  may    have    rendered 


B  CAS]  DIVIDENDS  735 

McDonald  v.  Williams 

themselves  liable  to  prosecution,  but  the  liability  of 
the  shareholder  is  different  in  such  a  case  ;  and  the 
receipt  of  a  dividend  under  the  circumstances  is 
different  from  an  act  which  may  be  said  to  be  g-enerally 
illeo"al,  such  as  the  purchase  of  stock  in  one  national 
bank  by  another  national  bank  for  an  investment 
merely,  which  is  never  proper.  Bank  v.  Hawkins 
(just  decided),  19  Sup.  Ct.  739. 

The  declaration  and  payment  of  a  dividend  is  part  of 
the  course  of  business  of  these  corporations.  It  is  the 
thing-  for  which  they  are  established,  and  its  payment 
is  looked  for  as  the  appropriate  result  of  the  business 
which  has  been  done.  The  presumption  of  legality 
attaches  to  its  declaration  and  payment,  because  declar- 
ing- it  is  to  assert  that  it  is  payable  out  of  the  profits. 
As  the  statute  has  provided  a  remedy,  under  section 
5205,  for  the  impairment  of  the  capital,  which  includes 
the  case  of  an  impairment  produced  by  the  payment  of 
a  dividend,  we  think  the  paj^ment  and  receipt  of  a 
dividend,  under  the  circumstances  detailed  in  the 
question  certified,  do  not  permit  of  its  recovery  back  by 
a  receiver  appointed  upon  the  subsequent  insolvency  of 
the  bank. 

The  facts  in  the  various  Eng-lish  cases  cited  by 
counsel  for  complainant  are  so  entirely  unlike  those 
which  exist  in  this  case  that  no  useful  purpose  would 
be  subserved  by  a  reference  to  them.  Not  one  holds 
that  a  dividend  declared  under  such  facts  as  this  case 
assumes  can  be  recovered  back  in  such  an  action  as 
this. 

We  answer  the  first  question  in  the  neg-ative. 

The  second  question  relates  to  the  jurisdiction  of  a 
court  of  equity  over  an  action  of  this  nature.  It  is 
evident  that  the  question  was  propounded  to  meet  the 
case  of  an  affirmative  answer  to  the  first  question. 

In  that  event  the  second  would  require  an  answer. 
As  we  answer  the  first  question  in  the  neg^ative,  and 
the  second  question  was  scarcely  touched  upon  in  the 
arg-ument,    we    think  it   unnecessary    to   answer    it  in 


736  DIVIDENDS  [vol  I 

Notes 

order  to  enable  the  court  below  to  proceed  to  judg-ment 
in  the  case.  The  first  question  will  be  certified  in  the 
nesrative. 


NOTES. 

Dividends— Rights  of  Corporate  Creditors. — Where  dividends  are 
illeg-ally  paid  from  the  capital,  or  when  there  has  been  a  fraudulent 
distribution  of  corporate  property  before  the  payment  of  debts,  a 
court  of  equity  will,  at  the  instance  of  defrauded  corporate  creditors, 
follow  the  fund  into  the  hands  of  the  stockholders  and  require  its- 
application  to  the  payment  of  those  debts.  Wood  v.  Dummer,  3 
Mason  (U.  S.)  308;  Curran  v.  Arkansas,  15  How.  (U.  S.)  304;  Main 
V.  Mills,  6  Biss.  (U.  S.)  98;  St.  Mary's  Bank  v.  St.  John,  25  Ala. 
566  ;  Gratz  v.  Redd,  4  B.  Mon.  (Ky.)  178  ;  Dudley  v.  Price,  10  B.  Mon. 
(Ky.)  84;  Brewer  v.  Michigan  Salt  Assoc,  58  Mich.  351  ;  Heman  v. 
Britton,  88  Mo.  549  ;  Williams  v.  Boice,  38  N.  J.  Eq.  364,  6  Am.  & 
Eng.  Corp.  Cas.  361  ;  Bartlett  v.  Drew,  57  N.  Y.  587  ;  Hastings  v. 
Drew,  76  N.  Y.  9 ;  Sagory  v.  Dubois,  3  Sandf.  Ch.  (N.  Y.)  466; 
Osgood  V.  Lay  tin,  48  Barb.  (N.  Y.)  463  ;  Adler  v.  Milwaukee  Patent 
Brick  Mfg.  Co.,  13  Wis.  63. 

In  Grant  v.  Southern  Contract  Co.  etal.  (Ky.),  9  Am.  &  Eng.  Corp. 
Cas.,  N.  S.,  682,  it  was  held  that  where  a  contract  company  distributed 
among  its  stockholders  the  full  amount  of  its  capital  stock,  and 
entire  assets,  to  the  detriment  of  its  creditors,  the  stockholders,  in 
actions  by  the  creditors,  may  be  compelled  to  refund,  whether  the 
company,  at  the  time  of  the  distribution,  was  solvent  or  insolvent, 
and  the  fact  that  the  distribution  was  called  a  '"dividend"  is  im- 
material. 

Same — Stock  Dividends. — And  where  the  dividend,  instead  of 
being  declared  and  payable  in  cash,  is  by  issue  of  stock,  where  the 
corporation  has  no  profits  on  which  to  base  such  an  issue,  its  cred- 
itors maj'  compel  the  holders  to  pay  for  such  stock  in  a  sequestration 
proceeding  under  Gen.  Stat.  Minn.  1878.  c.  76.  Hospes  v.  North- 
western Mfg.,  etc.,  Co..  48  Minn.  174,  31  Am.  St.  Rep.  637. 

Statutory  Liability  of  Directors  Does  Not  Exonerate  Stockholder. 
— An  express  statutory  provision  holding  the  directors  of  a  corpo- 
ration personally  responsible  for  dividends  paid  out  of  the  capital 
instead  of  the  profits  does  not  relieve  the  stockholder  of  his  common- 
law  liability  to  repay  such  dividends  for  the  benefit  of  the  creditors 
of  the  corporation.  Williams  v.  Boice,  38  N.  J.  Eq.  364,  6  Am.  & 
Eng.  Corp.  Cas.  361. 

When  Not  from  Capital— Capital  Stock  Not  a  Liability. — Under  sec- 
tion 1072  of  the  Code  of  loiva  the  payment  of  dividends  which  leaves 
insufficient  funds  to  meet  the  liabilities  of  the  corporation  is  such 
fraud  that  the  dividends  or  their  equivalent  in  the  hands  of  individ- 
ual stockholders  may  be  recovered  by  creditors.  The  statute,  how- 
ever, is  not  violated  by  the  payment  of  dividends  when  the  cash  on 
hand  is  not  sufficient  to  meet  liabilities,  if  the  entire  resources  of 
the  corporation  are  sufficient  for  that  purpose,  "Liability"  means  an 
indebtedness  the  payment  of  which  can  be  enforced,  and  hence  does 
not  include  the  capital  stock.     Miller  v.  Bradish,  69  Iowa  279. 


B  CAS]  USURY  737 

Watt  V.  First  Nat.  Bank  of  Lake  Benton,  Minn 


Watt 

V. 

First  Nat.  Bank  of  Lake  Benton,  Minn. 

{Supreme  Court  of  Minnesota,  June  g,  iSgg.) 

National  Banks — Penalty  for  Usury.— Where  a  national  bank  has 
received  a  greater  rate  of  interest  than  is  allowed  by  law,  the 
amount  of  recovery,  under  Rev.  St.  U.  S.  ^  5198,  by  the  party  who 
has  paid  the  same,  is  twice  the  amount  of  all  the  interest  paid,  and 
not  merely  double  the  excess  over  the  legal  rate. 

(Syllabus  by  the  Court.) 

Appeal  by  defendant  from  Lincoln  county  district 
court.     Affirmed. 

John  McKenzie,  for  appellant. 
F.  L.  JcDies,  for  respondent. 

Mitchell,  J.  This  action  was  broug-ht  under  the 
national  banking-  act  (Rev.  St.  U.  S.  §§  5197,  5198), 
which  provides  : 

"Sec.  5197.  Any  association  may  take,  receive,  re- 
serve and  charg-e  on  any  loan  or  discount  made,  or 
upon  any  note,  bill  of  exchang-e  or  other  evidences  of 
debt,  interest  at  the  rate  allowed  by  the  laws  of  the 
state,  territory  or  district  where  the  bank  is  located, 
and  no  more. 

"Sec.  5198.  The  taking-,  receiving-,  reserving-  or 
charg-ing-  a  rate  of  interest  g-reater  than  is  allowed  by 
the  preceding-  section,  when  knowingly  done,  shall  be 
deemed  a  forfeiture  of  the  entire  interest  which  the 
note,  bill  or  other  evidence  of  debt  carries  with  it  or 
which  has  been  ag-reed  to  be  paid  thereon.  In  case  the 
g-reater  rate  of  interest  has  been  paid,  the  person  hv 
whom  it  has  been  paid,  or  his  leg-al  representatives, 
may  recover  back,  in  an  action  In  the  nature  of  an 
action  of  debt,    twice   the  amount  of  the  interest  thus 

B  CAS— 47 


738  USURY  [vol  I 

Watt  r.  First  Nat.  Bank  of  Lake  Benton,  Minn 

paid   from    the    association    takinof    or    receiving-    the 
same." 

The  principal  question  in  the  case  is  whether  the 
amount  which  may  be  thus  recovered  back  is  twice  the 
entire  interest  paid,  or  merely  double  the  excess  of 
the  interest  over  the  leg-al  rate.  We  are  not  aware 
that  this  question  has  ever  been  passed  upon  by  the 
supreme  court  of  the  United  States,  but  it  has  been 
almost  uniformly  held  by  the  United  States  circuit 
courts  and  by  the  state  courts  that  the  amount  of  the 
recover}"  is  twice  the  entire  interest  paid,  and  not 
merely  double  the  excess  paid  over  the  leg-al  interest. 
16  Am.  &  Eng-.  Enc.  Law,  176,  and  cases  cited.  This 
seems  to  us  to  be  clearly  the  correct  construction  of 
the  statute.  It  would  be  extraordinary  if  congress  in- 
tended to  provide  for  a  forfeiture  of  all  interest  when 
no  usury  had  been  paid,  but  only  allow  a  recovery  of 
double  the  excess  over  leg-al  interest  when  the  interest 
had  been  paid.  The  word  "rate"  is  evidently  used  in 
the  same  sense  in  both  clauses  of  section  5198. 
"Greater  rate,"  in  the  second  clause,  is  the  same  as 
"a  rate  g-reater"  in  the  first  clause,  and  "the  amount 
of  interest  thus  paid"  in  the  second,  is  the  same  as 
^'the  entire  interest"  in  the  first.  The  entire  interest 
forfeited  is  just  the  rate  which  was  contracted  for. 
Upon  payment  of  "a  g-reater  rate"  than  is  lawful, 
^'twice  the  amount  of  the  interest  thus  paid"  is  twice 
the  entire  interest.  To  say  that  only  a  part  of  the 
g-reater  rate  (that  is,  the  excess  over  the  lawful  rate)  is 
the  amount  which  can  be  recovered  back  would  be  to 
do  violence  to  the  plain  lang-uag-e  of  the  statute.  Hill 
V.  Bank,  15  Fed.  432;  Bank  r.  Karmany,  98  Pa.  St. 
'65  ;  Louisville  Trust  Co.  v.  Kentucky  Nat.  Bank,  87 
Fed.  143.  The  only  authorities  we  have  found  to  the 
contrary  are  Hintermister  r.  Bank,  64  N.  Y.  212  (de- 
cided, "with  hesitation,"  larg-elv  upon  the  supposed 
authority  of  Brown  :•.  Bank,  72  Pa.  St.  209),  and  Bobo 
V.  Bank,  92  Tenn.^  444,  21  S.  W.  888,  which  follows 
the  Hintermister  Case.  Brown  r.  Bank,  supra,  is  not 
in  point,    the    syllabus    being-  misleading-.     In  view  of 


B  CAS]  ESTOPPEL  739 

Selover  v.  First  Nat.  Bank  of  Minneapolis 

the  decision  of  the  same  court  in  Bank  v.  Karmany, 
supra,  without  even  mentioning*  the  Brown  Case,  it 
would  seem  that  the  court  did  not  consider  that  the 
latter  case  decided  what  was  assumed  in  the  Hinter- 
mister  Case. 

2-  There  was  no  reversible  or  prejudicial  error  in 
admitting-  in  evidence  the  letter  from  the  defendant's 
cashier  to  the  plaintiff.  The  only  thing-  contained  in 
it  which  had  any  bearing- on  the  case,  or  could  possibly 
have  influenced  the  jury,  was  the  cashier's  statement 
that  the  amount  due  on  the  note  was  $1,622.  He  had 
already  testified  to  and  admitted  this  on  his  cross-ex- 
amination, to  which  there  was  no  exception.  Order 
affirmed. 

Buck,  J.,  absent,  took  no  part. 

NOTE. 

National  Banks — Interest — Usury — Penalty. — The  penalty  provided 
by  the  national  bank  act  for  the  taking  of  usurious  interest  is  twice 
the  amount  of  all  the  interest  paid.  Schuyler  Nat.  Bank  z'.  BoUong-, 
28  Neb.  684,  45  N.  W.  164  ;  First  Nat.  Bank  v.  Gumes,  49  Kan.  219, 
30  Pac.  Rep.  474  ;  Barnet  v.  Muncie  Nat.  Bank,  98  U.  S.  555  ;  Leba- 
non Nat.  Bank  V.  Karmany,  98  Pa.  St.  65  ;  Merchants',  etc.,  Nat. 
Bank  I'.  Meyers,  74  N.  Car. '514  ;  "Wiley  v.  Starbuck,  44  Ind.  298. 
See,  contra,  Bobo  v.  People's  Nat.  Bank,  94  Tenn.  444. 


Selover 


First  Nat.  Bank  of  Minneapolis. 

(Supreme  Court  of  Uliiinesota,  June  26,  iSgg.) 

Admission  of  Evidence — Harmless  Error. — Conceding-,  without 
deciding-,  that  certain  evidence  introduced  is  incompetent,  and  that 
ii  was  error  to  admit  it,  it  was  error  without  prejudice,  because  the 
fact  sought  to  be  proved  by  it  was  conclusively  proved  by  other  evi- 
dence. 

Loan  Procured  by  Fraud  —  Extending  Credit  —  Correspondent 
Banks — Estoppel. — M.  fraudulently,  and  b3'  means  of  false  pretenses, 
procured  a  loan  from  the  defendant  bank,   and  requested  it  to  credit 


740  ESTOPPEL  [vol  I 

Selover  v.  First  Nat.  Bank  of  Minneapolis 

the  amount  to  its  correspondent  bank  for  his  benefit.  This  defend- 
ant did,  by  notifying  the  correspondent  bank  accordingly.  There- 
upon the  latter  bank  credited  the  amount  on  the  antecedent  debt  of 
M.  Held,  defendant  was  not  by  reason  thereof  estopped,  as  against 
the  latter  bank,  from  rescinding  the  loan,  and  canceling  the  credit 
so  extended  to  the  latter  bank  for  the  benefit  of  M. 
(Syllabus  by  the  Court.) 

Appeal   by   plaintiff  from  Hennepin  county  district 
court.     Affj)'))ied. 

Robert  Jamison  ^\i^  Douglas  A.   Fiske,    for  appel- 
lant. 

Gilfillan,   Willard  &  Willard,  for  respondent. 

Canty,  J.     During-  all  the  time  hereinafter  stated, 
prior  to  February  25,  1895,  the  defendant,  the  First 
National  Bank  of  Minneapolis,  Minn. ,  was  a  correspond- 
ent of  the   Merchants'  Bank  of  Lake  City, 
ca,e8ut.d.  ;p^i^^^   and   one   Holmes  was  the  president 

of  the  latter  bank.  On  February  15,  1895,  Holmes 
borrowed  of  the  defendant  bank  the  sum  of  $4,000,  for 
which  sum  he  then  executed  his  note  to  that  bank, 
and,  as  collateral  security  for  the  loan,  assigned  and 
delivered  to  that  bank  50  shares  of  the  capital  stock  of 
the  Merchants'  Bank,  of  which  stock  he  was  then  the 
owner.  Fach  bank  kept  an  open  account  with  the 
other,  and  Holmes  directed  the  defendant  bank  to 
credit  the  account  of  the  Merchants'  Bank  with 
the  proceeds  of  the  loan,  amounting  to  $3,940.  There- 
upon, on  the  same  day,  the  defendant  bank  wrote 
the  Merchants'  Bank  as  follows  :  "We  credit  your 
account  $3,940,  proceeds  W.  F.  Holmes  note."  Ten 
days  thereafter,  on  February  25th,  the  attorney  general 
commenced  an  action  to  forfeit  the  charter  of  the 
Merchants'  Bank  on  the  ground  that  it  had  loaned  to 
Holmes,  directly  and  indirectly,  over  $30,000, — a  sum 
greatly  in  excess  of  15  per  cent,  of  the  total  amount  of 
the  capital  stock  of  that  bank.  A  receiver  of  the 
assets  of  the  bank  was  thereupon  appointed,  and  its 
doors  were  closed  on  that  day.  In  the  meantime  the 
credit  so  g-iven  the  Merchants"*  Bank  by  the  defendant 
bank  remained    upon  the  books  of  both  banks,  and  had 


B  CAS]  ESTOPPEI^  741 

Selover  v.  First  Nat.  Bank  of  Minneapolis 

not  been  drawn  upon  by  the  Merchants'  Bank.  On 
said  February  25th  the  defendant  bank  notified  both 
Holmes  and  the  Merchants'  Bank  that  defendant  had 
rescinded  the  loan  to  Holmes,  and  canceled  the  credit 
so  g-iven  to  the  Merchants'  Bank,  and  defendant  then 
tendered  back  to  Holmes  the  50  shares  of  stock  so 
delivered  to  it  as  collateral  security.  The  receiver 
made  no  attempt  to  collect  the  amount  of  this  credit 
from  defendant,  but  thereafter,  on  March  1,  1898,  he 
sold  the  claim  to  plaintiff  for  the  sum  of  $75;  and 
plaintiff  broug-ht  this  action  to  recover  the  amount  of 
the  claim,  to  wit,  the  sum  of  $3,940,  and  interest 
thereon.  On  the  trial  the  court,  sitting-  without  a 
jury,  found  for  defendant,  and  from  an  order  denying- 
a  new  trial  plaintiff  appeals.  The  defense  that  was 
interposed  is  that  Holmes  obtained  the  loan  from  the 
defendant  bank  by  means  of  false  and  fraudulent 
representations  ;  that  at  the  time  of  neg-otiatiug  the 
loan  he  represented  that  the  stock  so  offered  as  collat- 
eral security  was  worth  par,  to  wit,  the  sum  of  $5,000, 
whereas  in  fact  such  stock  was  wholly  worthless, 
which  he  then  well  knew,  and  made  the  representa- 
tions w^ith  intent  to  deceive  defendant,  who  believed 
the  representations,  and,  relying-  on  them,  was  induced 
thereby  to  make  the  loan.  To  avoid  the  effect  of  this 
defense,  the  plaintiff  claims  that,  on  the  faith  of  the 
'credit  so  g-iven  by  defendant  to  the  Merchants'  Bank, 
it  g-ave  credit  to  Holmes,  canceled  a  check  which  it 
held  ag-ainst  him,  and  put  itself  in  a  worse  position 
than  it  would  have  been  in  if  such  credit  had  not  been 
g-iven  to  him  as  a  result  of  such  loan  ;  that,  therefore, 
defendant  is  estopped,  as  ag-ainst  the  Merchants'  Bank 
and  this  plaintiff,  from  setting-  up  such  defense.  The 
evidence  amply  warranted  the  court  in  finding-  that  the 
representations  were  made  with  the  intent  aforesaid  ; 
that  defendant  relied  on  them,  and  was  by  them 
induced  to  make  the  loan.  The  only  evidence  tending- 
to  show  that  the  stock  was  worthless  on  February  15, 
1895,  was  that  the  Merchants'  Bank  was  insolvent  on 
February   25,   1895,    and   that  its  affairs  were  in  sub- 


742  ESTOPPEL  [voiv  I 

Selover  v.  First  Nat.  Bank  of  Minaeapolis 

stantially  the  same  condition  on  the  former  date  as  on 
the  latter. 

1.  Appellant  assig-ns  as  error  the  admission  of 
certain  evidence  introduced  for  the  purpose  of  show- 
ing" such  insolvency.  The  court  permitted  evidence 
to  be  introduced  of  the  testimony  of  Moore, 
jdmission  of  the  receiver,  gfiven  by  him  on  the  trial 
Harmless  Error,  of  another  action  between  other  parties,  in 
which  he  stated  the  total  amount  of  the 
assets  of  the  defunct  bank,  and  the  total  amount  of  its 
liabilities,  when  he  took  possession.  Admissions  of 
Moore  to  the  vice  president  of  defendant  to  the  effect  that 
its  repudiation  of  the  claim  was  just  were  also  received 
in  evidence.  After  the  action  was  commenced  by  the 
attorney  g-eneral,  a  creditor  of  the  Merchants'  Bank 
intervened  in  that  action,  and  filed  a  complaint  to 
enforce  the  stockholders'  superadded  liability.  It  is 
alleged  in  that  complaint  that  the  Merchants'  Bank 
was  insolvent  on  February  25th.  This  plaintiff,  who 
is  an  attorney  at  law,  sig-ned  that  complaint  as  the 
attorney  of  the  intervening-  creditor.  We  do  not  deem 
it  necessary  to  pass  on  the  admissibility  of  any  of  this 
evidence.  There  is  other  evidence  in  the  case  which 
tends  to  prove  that  the  Merchants'  Bank  was  insolvent 
at  the  time  aforesaid,  and  plaintiff  did  not  offer  a 
particle  of  evidence  to  rebut  the  same,  or  to  prove  that 
the  bank  was  not  insolvent  at  such  time.  Therefore  the 
evidence  is  conclusive  that  it  was  then  insolvent,  and, 
if  it  was  error  to  admit  the  evidence  objected  to,  it 
was  error  without  prejudice.  It  appears  by  the  report 
of  sale  made  by  the  receiver,  offered  in  evidence  by  the 
plaintiff,  that  the  g-reater  portion  of  the  assets  of  the 
defunct  bank  was  sold  at  public  auction  at  a  very  small 
price.  Among"  the  assets  so  sold  were  several 
promissory  notes  made  by  Holmes,  which  sold  for 
about  $1  for  every  $1,000  thereof.  Plaintiff  made  in 
said  intervention  proceedings  an  affidavit  for  the  pur- 
pose of  having"  additional  parties  brought  in,  and  it  is 
stated  in  the  affidavit  that  certain  stockholders  are 
liable  for  certain  amounts  on  their  superadded  liability. 


B  CAS]  ESTOPPEL  743 

Selover  v.  First  Nat.  Bank  of  Minneapolis 

On  the  trial,  plaintiif  stated  that  he  made  this  state- 
ment on  the  assumption  that  ultimately  the  assets 
would  not  be  sufficient  to  pay  the  debts.  He  then 
further  testified  :  "Q.  That  the  assets  of  the  bank  on 
hand  on  the  25th  day  of  February  were  not  sufficient  to 
pay  the  liabilities  of  the  bank  on  that  day  ?  A.  Wh3%  I 
think  so.  I  was  acting-  as  attorney  for  one  of  the  credit- 
ors, as  sufficiently  indicated  in  that  paper."  This  evi- 
dence of  the  insolvency  of  the  Merchants'  Bank  is  cor- 
roborated in  some  slig-ht  deg-ree  by  almost  every  line 
and  page  of  testimony  in  the  case,  and  is  wholly  uncon- 
tradicted. 

2.  In  our  opinion,  the  trial  court  did  not  err  in 
holding-  that,  on  the  faith  of  the  credit  g-iven  by  defend- 
ant to  the  Merchants'  Bank  for  the  benefit  of  Holmes, 
the  latter  bank  did  not  part  with  anything- 
which  can  be  urg-ed  here  as  the  basis  of  by*"ran*d-"'' 
any  such  an  estoppel  ag-ainst  defendant,  frfjifi'}?;^. 
For  the  purpose  of  making-  it  appear  that  "'*p«"^*"'^.. 
the  indebtedness  of  Holmes  to  the  Mer- 
chants' Bank  was  much  less  than  it  really  was,  the  sum 
of  $13,127.87  of  that  indebtedness  was,  on  the  books 
of  that  bank,  charg-ed  to  the  First  National  Bank  of 
Casselton,  N.  D.  There  never  was  any  foundation  for 
any  such  charg-e,  and  the  latter  bank  was  at  that  time 
indebted  to  the  former  in  the  sum  of  S27.80,  and  no 
more.  Besides  this  fictitious  charg-e  ag-ainst  the  Cas- 
selton bank,  and  the  Merchants'  Bank  kept  in  its 
drawer  a  check  drawn  by  Holmes  on  the  former  bank 
in  favor  of  the  latter  bank  for  the  sum  of  $4,000.  This 
check  was  never  entered  on  the  books  of  the  latter 
bank,  and  was  never  presented  for  payment  to  the 
former  bank,  who  knew  nothing-  about  the  existence  of 
this  check,  or  of  the  false  charg-e  on  the  books  of  the 
latter  bank.  This  was  the  condition  of  thing-s  Feb- 
ruary 15,  1895,  when  defendant  informed  the  Merchants' 
Bank  that  it  had  been  credited  with  the  $3,940  for  the 
benefit  of  Holmes.  Thereupon,  on  the  faith  of  this, 
the  Merchants'  Bank  credited  Holmes'  account  with 
$4,000,    credited    the    fictitious    account    ag-ainst    the. 


744  ESTOPPEL  [vol  I 

Selover  v.  First  Nat.  Bank  of  Minneapolis 

Casselton  bank  with  the  same  amount,  and  surrendered 
to  Holmes  the  check  aforesaid  ;  he  having-  at  the  same 
time  g-iven  the  Merchants'  Bank  a  new  check  for  $60. 
In  our  opinion,  the  trial  court  was  warranted  in  find- 
ing-, and  w^e  may  assume  that  it  did  find,  that  the  $4,000 
check  so  kept  in  the  drawer  was  g-iven  by  Holmes, 
and  held  by  the  Merchants'  Bank,  merely  for  the 
purpose  of  keeping-  up  false  appearances,  and  was  a 
part  of  the  same  scheme  in  pursuance  of  which  it  made 
the  false  charg-es  in  its  books.  Neither  plaintiff  nor 
the  Merchants'  Bank  can  predicate  any  estoppel  on  the 
fact  that  such  bank  used  the  credit  thus  extended  as  a 
pretext  for  taking-  down  some  of  these  false  colors.. 
But  the  fact  still  remains  that,  by  reason  of  the  gfiving- 
of  such  credit  by  defendant  to  the  Merchants'  Bank, 
the  latter  was  induced  to  g-ive  Holmes  credit  to  the 
amount  of  $3,940  on  his  antecedent  indebtedness  to  the 
latter  bank.  In  our  opinion,  this  alone  will  not  con- 
stitute a  sufficient  g-round  for  such  an  estoppel.  Ac- 
cording- to  the  weig-ht  of  autliority,  it  is  sufficient 
to  protect  the  indorser  of  neg-otiable  paper,  taken  in 
g-ood  faith  before  maturity,  that  the  same  was  taken 
in  payment  of  or  as  security  for  an  antecedent  debt. 
Rosemond  v.  Graham,  54  Minn.  323,  56  N.  W.  38  ;  4 
Am.  «&  Eng-.  Enc.  Law  (2d  Ed.)  285.  But  the  Mer- 
chants' Bank  was  not  protected  by  any  such  doctrine 
of  neg-otiability,  and  neither  is  plaintiff.  As  against 
either  of  these,  the  payment  of  the  antecedent  debt  of 
Holmes  to  the  latter  bank  is  not  sufficient  to  shield  it 
or  plaintiff  from  the  defendant's  defense  ;  but,  as 
ag-ainst  either  of  these,  the  defendant  is  entitled  to 
make  any  defense  which  it  could  have  made  ag-ainst 
Holmes  himself.  This  disposes  of  all  the  questions 
raised  having-  any  merit.  Order  affirmed. 
Mitchell,  J.,  absent. 


B  CAS]  STOCK  745 

Merchants'  Nat.  Bank  of  Rome  v.  Fouche 


Merchants'  Nat.  Bank  of  Rome 

V. 

Fouche. 

{Supreme  Court  of  Georgia,  July  28,  1898.) 

National  Banks  —  Impairment  of  Stock — Assessment  —  Sale  of 
Stock. — A  sale  of  all  the  shares  of  stock  held  by  a  shareholder  in  a 
national  bank  when  such  sale  is  made,  under  the  provisions  of  and 
for  the  purpose  set  forth  in  section  5205,  Rev.  St.  U.  S.,  as  amended 
by  Act  June  30,  1876,  is  void,  unless  at  such  sale  the  stock  brings  a 
price  equal  in  amount  to  the  assessment  placed  thereon  under  the 
provisions  of  that  section. 

(Syllabus  by  the  Court.) 

I^RROR  by  defendant  from  Floyd  county  city  court. 
Reversed. 

C.  iV.  Featherston,  for  plaintiff  in  error. 
Foiichc  d:  Fouche,  for  defendant  in  error. 

Fish,  J.  The  capital  stock  of  the  Merchants'  Na- 
tional Bank  of  Rome  became  impaired  25  per  cent., 
and,  in  pursuance  of  the  provisions  of  section  5205, 
Rev.  St.  U.  S.,  an  assessment  of  25  per  cent,  was 
levied  upon  the  shareholders,  pro  rata,  to  make  g-ood 
such  impairment.  One  of  the  shareholders  neg-lected 
or  refused  to  pay  his  fro  rata  of  this  assessment,  and 
all  of  his  stock  was  offered  for  sale  and  bid  off  by  the 
plaintiff  (defendant  in  error),  at  the  price  of  $10.90  per 
share,  at  public  auction  had  in  conformity  with  the 
statute.  The  officers  of  the  bank  refused  to  deliver 
the  stock  to  the  plaintiff,  upon  the  tender  of  the  amount 
of  his  bid,  whereupon  he  sued  the  bank  for  the  difference 
between  the  real  value  of  the  stock  at  the  date  of  sale 
and  the  sum  at  which  it  was  knocked  off  to  him.  A 
demurrer  was  filed  to  the  petition,  the  main  g-round  of 
which  was  that  the  petition  showed  the  sale  to  be 
void  because  the  amount  of  the  bid  was  less    than    the 


746  STOCK  [voiv  I 

Merchants'  Nat.  Bank  of  Rome  v.  Fouche 

amount  of  the  assessment.  The  demurrer  was  over- 
ruled, and  the  defendant  excepted.  Section  5205,  Rev. 
St.  U.  S.,  prescribes  that  "every  association  whose 
capital  stock  shall  have  become  impaired  by  losses  or 
otherwise,  shall,  within  three  months  after  receiving- 
notice  thereof  from  the  comptroller  of  the  currency, 
pay  the  deficiency  in  the  capital  stock  by  an  assessment 
upon  the  shareholders,  p?-o  rata,  for  the  amount  of 
capital  stock  held  by  each."  Section  4,  Act  June  30, 
1876  (Rev.  St.  U.  S.  §  5205),  further  provides  "that 
if  any  shareholders  of  such  bank  shall  neg^lect  or  refuse, 
after  three  months'  notice,  to  pa}'  the  assessment  as 
provided  in  this  section,  it  shall  be  the  duty  of  the 
board  of  directors  to  cause  a  sufficient  amount  of  the 
capital  stock  of  such  shareholder  or  shareholders  to  be 
sold  at  public  auction  (after  thirty  days'  notice  shall  be 
ofiven  by  postino-  such  notice  of  sale  in  the  office  of  the 
bank,  and  by  publishing-  such  notice  in  a  newspaper 
of  the  city  or  town  in  which  the  bank  is  located,  or  in 
the  newspaper  published  nearest  thereto),  to  make 
ofood  the  deficiency  ;  and  the  balance,  if  any,  shall  be 
returned  to  such  delinquent  shareholder  or  share- 
holders." The  question  made  is  whether  a  sale  under 
this  law  is  valid,  and  can  be  enforced  by  the  buyer, 
when  the  price  at  which  the  stock  is  bid  off  is  less  than 
the  amount  of  the  assessment.  The  intention  of  the 
national  banking- act  is  that  the  capital  stock  of  national 
banks  shall  not  be  worth  less  than  par.  And  to  this 
end  it  is  provided,  by  the  statute  above  quoted,  that  if, 
by  losses  or  otherwise,  the  stock  of  any  such  bank 
shall  become  impaired,  then,  within  three  months  after 
receiving-  notice  thereof  from  the  comptroller  of  the 
currency,  the  bank  shall  pay  the  deficiency  in  the  cap- 
ital stock  by  an  assessment  upon  the  shareholders,  pro 
rata,  for  the  amount  of  capital  stock  held  by  each  ;  and 
if  any  shareholder  shall  neglect  or  refuse,  after  three 
months'  notice,  to  pay  his  pro  rata  assessment,  then 
the  board  of  directors  shall  cause  a  sufficient  amount 
of  the  stock  of  such  shareholder  to  be  sold  at  public 
auction,  after  proper  advertisement,  to    make   g-ood  the 


B  CAS]  STOCK  747 

Merchants'  Nat.  Bank  of  Rome  v.  Fouche 

deficiency.  The  law  contemplates  that  the  burden  of 
restoring-  an  impaired  capital  shall  rest  equally  on  all 
the  shareholders.  If  some  pay  their  pro  rata  in  full, 
and  the  purchasers  of  the  stock  of  delinquents  pay  less, 
then  such  purchasers  hold  stock  in  a  corporation  on 
better  terms  than  those  who  paid  in  full  ;  and,  again, 
a  portion  of  the  impairment,  which  it  was  the  only 
object  of  the  assessment  to  make  g^ocd,  remains,  and 
the  evident  purpose  of  the  law  is  thus  defeated.  More- 
over, the  statute  imperatively  states  that  a  sufficient 
amount  of  the  delinquent's  stock  shall  be  sold  to  make 
g-ood  the  deficiency,  and  the  balance,  if  any,  returned 
to  such  delinquent  shareholder.  The  law  here  pro- 
vides for  the  disposition  of  the  "surplus"  arising-  from 
the  sale,  provided  the  stock  sells  for  more  than  the 
assessment,  but,  of  course,  could  not  entertain  the 
possibility  of  a  deficiency  in  view  of  the  plain  provision 
that  a  sufficient  amount  of  the  stock  must  be  sold  to 
make  g-ood  the  deficiency.  The  law,  in  effect,  makes 
the  amount  due  by  each  delinquent  shareholder,  under 
the  assessment  on  his  stock,  "an  upset  price,"  which 
it  must  bring-,  when  sold  under  the  provisions  of  the 
statute,  and  this  bidders  are  presumed  to  know.  We 
are  of  opinion,  therefore,  that  as  the  bid  for  the  stock, 
in  this  instance,  did  not  equal  the  amount  of  the  as- 
sessment for  the  payment  of  which  the  stock  was 
offered  for  sale,  there  was  no  leg-al  sale,  and  the  in- 
tended purchaser  acquired  no  rig-ht  or  title  to  the  stock 
upon  tendering-  the  amount  of  his  bid.  The  construction 
which  we  have  placed  upon  the  statute  is  the  same  as 
that  which  it  has  received  from  the  comptroller  of  the 
currency  under  the  present  and  the  last  preceding- 
administration  at  Washington.  The  court  below  erred 
in  overruling-  the  demurrer.     Judg-ment  reversed. 


748  GARNISHMENT  [vOL  I 

Com.  to  Use  of  Com.  Title,  etc.,  Co.  v.  Chestnut  St.  Nat.  Bank 


Commonwealth,  to  Use  of  Commonwealth 
Title  Insurance  &  Trust  Co. 


Chestnut  St.  Nat.  Bank  et  al. 

(Supreme  Court  of  Pennsylvania,  Jan.  jo,  iSgg.) 

National  Banks  as  Garnishees. — Section  £242  of  the  Revised  Stat- 
utes of  the  United  States,  providing-,  in  substance,  that  no  attach- 
ment shall  issue  against  a  national  bank  or  its  property  before  final 
judgment  in  any  proceeding  in  any  state  court,  etc.,  is  not  applica- 
ble to  an  attachment  against  an  individual,  with  a  clause  of  scire 
facias  to  warn  the  bank  to  show  cause  why  judgment  should  not  be 
levied  of  such  individuars  property   in  the  possession    of  the  bank. 

Appeal    by    g-arnishees   from    Philadelphia  couuty 
court  of  common  pleas.     AffiDiicd. 

The  opinion  of  the  trial  court  was  as  follows  : 
"Judg-raent  was  entered  against  the  defendant, 
James  Long,  on  September  29,  1897,  for  $31,499  ;  and 
on  October  5,  1897,  an  attachment  siir  judgment  was 
issued  and  served  on  the  Chestnut  Street  National 
Bank  as  garnishee.  To  interrogatories  the  bank 
answered  :  That  Long  was  indebted  to  it  in  the  sum 
of  $17,831,  with  interest  from  Aoril  22,  1897.  That 
on  September  20,  1897,  it  issued  a  bill  for  $2,900, 
pa\'able  only  through  the  clearing  house  the  day  after 
issue,  and  delivered  same  to  Long,  he  having  closed  his 
account  with  the  bank.  The  duebill  was  not  paid 
through  the  clearing  house,  but  on  November  3,  1897, 
which  was  nearly  a  month  after  the  service  of  the 
attachment.  Long  surrendered  the  duebill  to  the  bank, 
to  pa}^  interest  due  on  his  indebtedness  above  men- 
tioned, which  interest  was  deducted,  and  the  bank 
issued  a  new  certificate,  dated  November  3,  1897,  for 
S2,444.33,  and  delivered  it  to  Long.  This  duebill  was 
passed    through    the  clearing    house  and    paid.      The 


B  CAS]  GARNISHMENT  749 

Com.  to  Use  of  Com.  Title,  etc.,  Co.  v.  Chestnut  St.  Nat.  Bank 

bank  answered  further  that,  when  the  writ  of  attach- 
ment was  served,  it  held,  as  collateral  security  for  the 
indebtedness  to  it,  seventy-seven  shares  of  the  National 
Gas  Trust,  of  the  value  of  $160  per  share,  and  thirty- 
three  shares  of  the  capital  stock  of  the  Eig-hth  National 
Bank,  of  the  value  of  $264  per  share.  The  Chestnut 
Street  National  Bank  failed  on  December  23,  1897,  and 
is  now  in  the  hands  of  a  receiver,  who  has  entered  a 
rule  to  vacate  and  dismiss  the  attachment  ag-ainst  that 
bank  for  want  of  jurisdiction  in  this  court.  In  support 
of  the  rule  the  receiver  relies  upon  section  5242  of  the 
Revised  Statutes  of  the  United  States,  which  is  as 
follows  :  'AH  transfers  of  the  notes,  bonds,  bills  of 
exchang-e,  or  other  evidences  of  debt  owing-  to  any 
national  banking-  association  or  of  deposits  to  its 
credit,  all  assignments  of  mortg-ag-es,  securities  on  real 
estate,  or  of  judg-ments,  or  decrees  in  its  favor  :  all 
deposits  of  money,  bullion  or  other  valuable  thing"  for 
its  use  or  for  the  use  of  any  of  its  shareholders  or 
creditors  ;  and  all  payments  of  money  to  either  made 
after  the  commission  of  an  act  of  insolvency,  or  in  con- 
templation thereof,  made  with  a  view  to  prevent  the 
application  of  its  assets  in  the  manner  prescribed 
by  this  chapter,  or  with  a  view  to  the  preference  of 
one  paper  to  another,  except  in  payment  of  its  circulat- 
ing- notes,  shall  be  utterly  null  and  void.  No  attach- 
ment, injunction,  or  execution  shall  be  issued  ag-ainst 
such  association  or  its  property  before  final  judg-ment 
in  any  suit,  action,  or  proceeding-  in  any  state,  county, 
or  municipal  court.' 

"  Were  this  attachment  issued  ag-ainst  the  bank  for 
a  debt  due  by  it,  then  the  claim  of  the  receiver  to 
exemption  from  such  attachment  would  be  valid.  But 
it  is  not  for  an  indebtedness  of  the  bank  that  an  attach- 
ment was  served  on  it.  The  attachment  is  for  an 
indebtedness  by  Ivong-,  and  the  purpose  of  the  attach- 
ment is  not  to  obtain  a  judg-ment  for  a  debt,  due  by  the 
bank,  but  to  inquire  and  determine  whether  it  has  any 
money  or  property  of  Long-  which  is  subject  to  an 
execution  at  the  suit  of  his  creditors.     The  purpose  of 


750  GARNISHMENT  [vOIv  I 

Com.  to  Use  of  Com.  Title,  etc.,  Co.  v.  Chestnut  St.  Nat.  Bank 

the  statute  is  to  prevent  one  creditor  of  an  insolvent 
national  bank  from  obtaining-  a  priority  over  others, 
and  to  preserve  an  equality  between  its  creditors  in  the 
distribution  of  its  assets.  Therefore  it  is  enacted  that 
no  attachment,  injunction,  or  execution  shall  issue 
against  such  association  or  its  property  before  judg-- 
ment, — such,  for  instance,  as  a  foreig-n  attachment  for 
a  debt  by  it.  The  statute  does  not  prevent  suits  ag-ainst 
a  national  bank  in  a  state  court.  All  it  means  is  that 
no  liens  shall  be  acquired  before  judgment  by  attach- 
ment, injunction,  or  execution  before  judg^ment.  After 
judg-ment  an  execution  may  be  issued  ag-ainst  a  national 
bank,  the  same  as  agfainst  any  other  defendant.  But 
this  is  not  a  suit  ag-ainst  the  bank.  It  is  a  suit  now  in 
judg-ment  ag^ainst  Long-,  and  the  attachment  is  an 
execution  ag^ainst  him,  with  a  clause  of  scire  facias  to 
warn  the  bank  to  show  cause  why  judgment  should  not 
be  levied  of  Longf's  property  in  the  possession  of  the 
bank.  The  bank  admits  that  when  the  attachment  was 
served  it  owed  Long-  $2,900  on  a  clearingf-house  duebill, 
which  was  not  paid  in  the  usual  course  of  such  duebills  ; 
that  Long-  presented  the  bill  to  the  bank  on  November 
8,  1897,  and  the  bank  paid  it  by  g-iving-  Long-  credit  for 
interest  due  by  him,  and  g-iving-  him  a  new  bill.  This 
was  a  month  after  the  attachment  had  been  served 
upon  the  bank.  The  bank  had  no  rig-ht  to  deal  with 
Long-  as  it  did.  The  plaintiff  was  entitled  to  that 
money,  and  to  a  finding-  to  that  effect.  Likewise,  the 
plaintiff  is  entitled  to  a  finding- that  the  bank  holds  the 
above-mentioned  shares  of  stock  subject  to  its  lien  for 
the  indebtedness  of  Long-  to  it,  and  the  plaintiff  is 
entitled  to  execution  ag-ainst  that  stock,  subject  to  the 
lien  of  the  bank.  As  to  the  money,  we  incline  to  think 
that  as  the  bank  is  now  insolvent  the  plaintiff  can 
recover  no  more  than  a  dividend,  and  is  not  entitled  to 
any  priority  over  the  other  creditors  of  the  bank.  As 
to  the  stock,  the  plaintiff  is  entitled  to  a  fi.  fa.  to  sell 
that,  subject  to  the  claim  of  the  bank.  The  foreg-oing- 
reasoning-  has  the  support  of  a  decision  of  the  court  of 
appeals  of  New  York,  which  held  that  section  5242  of 


B  CAS]  ASSETS  751 

Longfellow  v.  Barnard 

the  Revised  Statutes  of  the  United  States  does  not 
prohibit  the  issue  of  an  attachment,  injunction,  or 
execution  ag-ainst  an  insolvent  national  bank  for  prop- 
erty of  a  third  person  in  the  custody  of  the  bank. 
Bank  v.  Blye,  101  N.  Y.  303,  4  N.  E:.  635.  Rule  dis- 
charged," 

Asa  W.   Waters  and   W.   H.  Addicks,  for  appellants. 
Alfred  D.   Wiler  and  Craxvford,  Laughlin  &  Dallas, 
for  appellees. 

Per   Curiam.     The    judg-ment   is   affirmed  on  the 
opinion  of  the  learned  president  of  the  court  below. 


Longfellow 


Barnard. 

{Supreme  Court  of  Nebraska,  May  ij,  iSgg.) 

Unincorporated  Bank. — An  unincorporated  bank,  exclusively 
owned  by  a  private  individual,  is  not  a  legal  entity,  even  though  its 
business  be  conducted  by  a  president  and  cashier. 

Same — Right  to  Dispose  of  Assets. — In  such  case  the  assets  of  the 
bank  represent  merely  the  portion  of  the  owner's  capital  invested  in 
banking,  and  he  may  lawfully  dispose  of  them  to  pay  or  secure  the 
just  claims  of  any  of  his  creditors. 

Right  of  Fraudulent  Vendee  to  Secure  Creditor  of  Vendor. — A 
fraudulent  vendee  of  property  may  lawfullj'  mortgage  the  same  to 
secare  a.  dona  Jide  creditor  of  the  fraudulent  vendor.  The  consent 
of  the  vendor  to  such  disposition  of  the  property  is  implied  in  the 
conveyance  by  which  he  invested  the  vendee  with  the  title. 

Same — Same  —  Mortgage — Consideration. — A  pre-existing  debt 
already  due  is  a  sufficient  consideration  for  the  execution  of  a  mort- 
gage securing  the  same. 

Mortgage— Ignorance  of  Party  Secured.— A  mortgage  given  to 
indemnify  a  surety  or  guarantor  is,  in  legal  effect,  a  security  to  the 
owner  of  the  debt,  even  though  he  did  not  originally  rely  on  it,  or 
know  of  its  existence. 

Same — Assignment  to  Secure  Creditor  of  Fraudulent  Mortgagor — 
Consideration. — An  assignment  of  a  fraudulent  mortgage  to  secure 
a  creditor  of  the  mortgagor  is  valid  without  any  consideration  mov- 
ing from   the   assignee   to  the   assignor.     Such  a  transaction   is,  in 


752  ASSETS  [vol  r 

Loug-fellow  V.  Barnard 

substance,  a  release  of  the  fraudulent  mortgag-e  and  the  execution 
of  a  new  mortg'ag'e  by  the  debtor  to  his  creditor. 

Merger. — Whether  a  merg-er  results  from  the  possession  by  the 
same  person  at  the  same  time  of  two  estates  of  different  rank  in  the 
same  property  depends  generally  on  the  intention  of  the  owner. 

Appointment  of  Receiver. — The  appointment  of  a  receiver  is  in 
the  nature  of  an  equitable  execution.  By  it  the  court  is  able  to 
reach  only  the  actual  interest  of  the  debtor  in  the  property  im- 
pounded. 

(Syllabus  by  the  Court.) 

Appeal  by  defendant  from  Saunders  county  district 
court.     Reversed. 

MiDiger  &  Courtright,  for  appellant. 
Good  &  Good.,  for  appellee. 

Sullivan,  J.  This  action  was  instituted  in  the 
district  court  by  the  appellee  agfainst  the  appellant  to 
cancel  and  annul  a  mortg'ag'e  upon  lot  7  and  the  west 
half  of  lot  8  in  the  County  addition  to  the 
city  of  Wahoo.  The  defendant  answered, 
asserting  the  validity  of  his  mortg-age,  and  demanding' 
a  foreclosure  of  the  same.  The  decree  granted  the 
relief  soug"ht  by  the  petition,  and  dismissed  the  counter- 
claim. Barnard  brings  the  record  here  for  review  bv 
appeal. 

Most  of  the  essential  facts  are  either  admitted  or 
specifically  found  by  the  trial  court.  The  lots  were 
orig^inally  owned  by  W.  H.  Dickinson,  and  are  covered 
by  a  larg"e  brick  building,  one  room  of  which  was  used 
and  occupied  for  some  years  prior  to  1893  by  the  State 
Bank  of  Wahoo.  The  bank  was  not  incorporated,  but 
was  a  private  institution,  owned  and  manag-ed  by  Dick- 
inson, who  was  at  the  same  time  conducting*  a  real-estate, 
loan,  and  insurance  business.  He  \vas  also  interested 
in  an  electric  light  plant,  and  owned  an  elevator  and 
coal  yard.  On  January  24,  1893,  Dickinson  being- 
insolvent,  and  having-  absconded,  the  bank  closed  its 
doors,  and  soon  afterwards  passed  into  the  hands  of  a 
receiver  appointed  under  the  authority  of  section  14,  c. 
37,  p.  397,  Sess.  Laws  1889.  In  November,  1892, 
Dickinson,  for  the  purpose  of  defrauding-  his  creditors, 
executed  to  his  sister-in-law,  Harriet  K.  Adams,  the 
mortgage  in  suit ;  and  about  a  month  later  he   made  a 


B  CAS]  ASSETS  753 

Longfellow  v.  Barnard 

fraudulent  conveyance  to  her  of  the  leg-al  title  to  the 
mortg-ag-ed  property.  The  deed  contained  a  recital  to 
the  effect  that  the  grantee  had  assumed  the  payment  of 
her  own  mortgagee.  Both  instruments  were  filed  for 
record  at  the  same  time.  Prior  to  the  events  just 
recounted,  Dickinson,  in  some  transaction  not  connected 
with  the  banking- business,  became  indebted  to  Barnard 
in  the  sum  of  $2,000.  This  indebtedness  was  evidenced 
by  a  promissory  note  which  Barnard  had  sold  to  the 
First  National  Bank  of  Fremont  with  a  g-uaranty  of 
payment  at  maturity.  The  note  became  due  on  January 
1,  1893,  and,  being  unpaid,  Barnard  went  to  Wahoo 
with  a  view  of  obtaining-  security  or  payment.  He  was 
unable  to  see  Dickinson,  but  he  obtained  from  Miss 
Adams,  as  protection  to  his  g-uaranty,  an  assignment  of 
her  mortg-ag-e  and  the  note  which  it  was  g-iven  to  secure  ; 
and  he  ag-reed,  in  consideration  of  receiving-  the  collat- 
eral, to  take  up  the  note,  which  was  still  held  by  the 
Fremont  bank,  and  carry  it  himself  for  some  indetermi- 
nate time.  The  defendant  did  afterwards  take  up  the 
note  according-  to  his  ag-reement,  and  now  seeks  to  obtain 
payment  by  foreclosure  of  the  Adams  mortg-ag-e.  The 
receiver  is  in  possession  of  the  propert}^  He  holds  the 
leg-al  title,  which  was  conveyed  to  him  by  Miss  Adams 
in  recog-nition  of  his  superior  rig-ht,  and  subject  only 
to  such  incumbrances  as  the  courts  of  this  state  might 
adjudg-e  to  be  valid.  The  trial  court  found  that  Bar- 
nard knew,  or  oug-ht  to  have  known,  that  the  convey- 
ances by  Dickinson  to  Adams  were  made  for  the  purpose 
of  defrauding  creditors.  This  finding-  seems  to  be 
warranted  by  the  evidence,  and  we  shall,  therefore,  in 
the  further  consideration  of  the  case,  assume  its 
correctness. 

With  this  statement  of  the  salient  facts,  we  proceed 
to    examine    what  we    deem  to    be  the    decisive    points 
discussed  in  the  briefs  of  counsel.     The  validity  of  the 
mortg-ag-e   in  the   hands  of    the  defendant  is 
the    cardinal    question    which    each    of    the  jjnin|^'''"-p'»'-ated 
parties,     in    demanding-    affirmative    relief, 
presents    for  decision.     The   appellee  insists  that  the 

B  CAS— 48 


754  ASSETS  [vol  I 

Long-fellow  v.  Barnard 

State  Bank  of  Walioo  was  a  de  facto  corporation,  and 
that  the  morttjaofed  property,  being-  a  bank  asset,  was 
primarily  liable  for  the  payment  of  claims  g-rowing-  out 
of  the  bank  business.  We  cannot  accept  this  view,  for 
it  is  obviously  based  on  a  false  assumption.  The  busi- 
ness of  the  bank  was  conducted,  it  is  true,  by  a  presi- 
dent and  cashier  ;  but  articles  of  incorporation  were 
never  adopted  ;  it  had  no  board  of  directors  ;  it  never 
pretended  to  possess  or  exercise  corporate  powers  ;  it 
was  incapable  of  contracting-  debts,  or  of  owning-  and 
holding"  propert^^  In  its  reports  to  the  state  banking- 
board  it  was  represented  as  a  private  concern,  of  which 
W.  H.  Dickinson  was  the  sole  proprietor.  Certainly 
it  was  not  in  fact  a  leg-al  entity,  and  we  know  of  no 
reason  whv  the  owner,  or  those  in  privity  with  him, 
should  be  precluded  from  asserting-  the  truth  in  regard 

to  the  matter.  The  assets  of  the  bank  rep- 
uisTo^'ofAsJ^s.    resented    merely  the  portion  of    Dickinson's 

capital  invested  in  banking-,  and  its  liabilities 
represented  the  indebtedness  incurred  by  Dickinson  as 
a  banker.  The  assets  were  his,  and  he  might  dispose 
of  them  as  he  pleased,  subject,  of  course,  to  the  power 
of  creditors  to  reclaim  them  if  the  disposition  should  be 
in  fraud  of  their  rig-hts.  The  liabilities  were  also  his, 
and  for  their  satisfaction  all  of  his  property  not  exempt 
by  law  was  equally  liable  to  seizure  and  sale.  It  results 
from    these    considerations    that    Barnard,    before    the 

appointment  of  the  receiver,  mig-ht  have 
kift''v*ndMTo^°"  obtained  from  Dickinson  security  for  the 
secnre  Creditor  of   $2,000  note  in  the  form  of  a  mortg-age  on  the 

real  estate  in  controversy  ;  and  he  mig-ht  also, 
with  Dickinson's  consent,  take  as  security  an  assig-nment 
from  Miss  Adams  of  the  mortg-ag-e  in  suit.  Such  a 
transaction  would  be,  in  substance,  a  restoration  of  the 
property  to  the  owner,  and  the  execution  b}'-  him  of  a 
mortgag-e  thereon  to  secure  the  just  claim  of  a  creditor. 
Murphy  :•.  Brig-gs,  89  N.  Y.  446.  It  would  effectually 
purg-e  the  mortg-age  of  the  fraud  with  which  it  was 
originally  tainted,  and  make  it  a  valid  and  enforceable 
securit3^     This    proposition    is    amply    sustained    by 


B  CAS]  ASSETS  755 

Long-fellow  v.  Barnard 

authority.  Bank  v.  Haskins,  3  Mete.  332  ;  Crown- 
inshield  v.  Kittridg-e,  7  Mete.  520  ;  Thomas  v.  Goodwin, 
12  Mass.  140  ;  Hutchins  v.  Sprag-ue,  4  N.  H.  469;  Butler 
V.  White,  25  Minn.  432  ;  Brown  r-.  Webb,  20  Ohio,  389  ; 
Dolan  V.  Van  Demark,  35  Kan.  304,  10  Pac.  8+8.  In 
the  cases  here  cited  the  property  conveyed  to  defraud 
creditors  was  afterwards,  with  consent  or  by  the 
direction  of  the  debtor,  applied  to  the  payment  of  his 
debts.  They  were  eases  in  which  he  exercised, 
throuofh  the  agency  of  the  fraudulent  transferee,  his 
undoubted  rig-ht  to  pay  or  secure  some  of  his  creditors 
to  the  prejudice  of  others.  The  case  at  bar  is  some- 
what diiferent,  and  we  were  at  first  inclined  to  think 
that  Miss  Adams  had  no  implied  power  to  make  either 
the  defendant  or  the  Fremont  bank  a  preferred  creditor. 
But  the  judicial  utterances,  we  find,  are  to  the  effect 
that  she  had.  In  Dolan  v.  Van  Demark,  supra, 
Valentine,  J.,  deliverino-  the  opinion  of  the  court, 
said  :  "While,  generally,  a  fraudulent  vendee  cannot, 
as  against  the  creditors  of  the  fraudulent  vendor,  sell, 
assign,  or  transfer  the  property  to  a  third  person  who 
has  notice  of  the  fraud,  nor  transfer  or  assig^n  the  same 
to  even  a  person  who  has  no  such  notice,  where  such 
transfer  or  assignment  is  merely  to  pay  a  pre-existing 
debt  of  the  fraudulent  vendee,  yet  such  fraudulent 
vendee  may  make  a  valid  sale  of  the  property  to  a 
bona  fide  purchaser  without  notice  of  the  fraud,  or 
may,  with  the  consent  of  the  fraudulent  vendor,  and 
probably  without  his  consent,  make  a  valid  transfer  or 
assignment  of  such  propert}^  to  a  creditor  of  the  fraud- 
ulent vendor,  either  in  payment  or  partial  payment  of 
a  bona  fide  debt  of  the  fraudulent  vendor,  or  as 
security  for  such  debt,  and  whether  such  creditor  has 
notice  or  not  of  the  prior  fraudulent  sale."  In  Webb 
V.  Brown,  3  Ohio  St.  246,  which  was  a  contest  between 
creditors,  it  was  distinctly  held  that  the  fraudulent 
vendee  might,  without  authority  from  his  vendor, 
prefer  one  of  the  latter's  creditors.  The  court  said  : 
"A  conveyance  by  a  fraudulent  vendee  of  goods  in 
payment   or  security  of  the    vendor's  debt   requires  no 


756  ASSRTs  [vol  I 

Long'fellow  v.  Bai-nard 

other  assent  than  that  which  is  contained  in  the  vest- 
ing" of  the  vendee  with  all  the  vendor's  rigfht  in  the 
property."  We  accept  this  as  a  correct  statement  of 
the  law,  and  accordingfly  hold  that  the  assignment 
from  Miss  Adams  was  just  as  effectual  as  though  it 
had  been  made  with  Dickinson's  express  consent. 

But  it  is  contended  by  the  receiver  that  Miss  Adams 
had  no  mortgage  to  assign  ;  that  it  was  merged  in  the 
legal  estate,  and    ceased    to   exist,    when    she    became 

the  owner  of  .the  fee.     Upon  this  point  the 

trial  court  made  no  finding,  but  the  evidence, 
we  think,  pretty  conclusively  shows  that  the  mortgage 
was  not  extinguished.  Whether  a  merger  results 
from  the  possessfon  by  the  same  person  at  the  same 
time  of  two  estates  of  different  rank  in  the  same 
property,  is  generally  a  question  of  the  owner's 
intention.  Mathews  v.  Jones,  47  Neb.  616,  66  N.  W. 
622  ;  Lumber  Co.  v.  Bourke,  55  Neb.  9,  75  N.  W.  241. 
Miss  Adams  agreed,  in  the  deed  from  Dickinson,  to 
pay  this  mortgage.  She  filed  both  instruments  for 
record  at  the  same  time,  and  afterwards  assigned  the 
mortgage  as  security.  These  facts  clearly  evince  an 
election  by  her  to  keep  it  alive.  Insurance  Co.  v. 
Corn,  89  111.  170  ;  Kellogg  v.  Ames,  41  N.  Y.  259. 

The  receiver  asserts  that  the  assignment  of  the  mort- 
gage was  void    for  want  of  a  valuable  consideration  to 

support  it.  We  do  not  think  it  was.  The 
Same-Same-  trausactiou,  as  we  have  already  pointed  out, 
sideration.  was,     lu    substauce    and   legal    etrect,    the 

execution  by  Dickinson  to  Barnard  of  a 
mortgage  to  secure  the  payment  of  the  $2,000  note. 
Murphy  v.  Moore,  23  Hun,  95  ;  Seymour  v.  Wilson, 
19  N.  Y.  417.  While  it  was  primarily  intended  to 
indemnify  Barnard  against  loss  by  reason  of  his  guar- 
anty, it    was,  as  a  matter  of    law,  a  security    to  which 

the  First  National  Bank  of  Fremont  might 
MortpasTd-igno-     rightfully    resort  for  the   payment    of    its 

ranee  of  Party  J^ .  -^  .  i-i       tij  i  •  l 

Secured.  claim,  eveu  though  it  did  not  rely  on  it,  or 

know  of  its  existence.     Bank  v.  Stewart,  56 

Neb.—,  77   N.  W.  370;  Seibert  v.  True,  8   Kan.  52  ; 


B  CAS]  ASSETS  757 

Long-fellow  v.  Barnard 

New  Bedford  Sav.  Inst.  v.  Fairhaven  Bank,  9  Allen, 
175;  Moses  ~^'.  Murg^atroyd,  1  Johns.  Ch.  119.  The 
existence  of  the  debt  and  the  g-uaranty  of  its  payment 
made  the  assig^nment  valid  without  any  other  consider- 
ation. The  assig"nor  was  entitled  to  no 
consideration.  She  parted  with  nothing-  ^*™[7,^^eJu« 
that  was  lawfully  hers.     She  merely  trans-  creditor  of  Fraad- 

,    -_.         .  -,  -'-p,.    ,    .  nient  Mortgagor— 

ferred  Dickinson  s  property  to  pay  Dickin-  consideration, 
son's  debt.  That  a  pre-existing-  debt, 
already  due,  is  a  sufficient  consideration  for  the  execu- 
tion of  a  mortg-ag-e  securing-  the  same,  is  a  doctrine 
well  established  by  the  decisions  of  this  court.  Turner 
V.  Killian,  12  Neb.  580,  12  N.  W.  101  ;  Henry  v.  Vliet, 
36  Neb.  138,  54  N.  W.  122  ;  Chaffee  v.  Lumber  Co., 
43  Neb.  224,  61  N.  W.  637.  And  it  is  equally  w^ell 
settled  that  the  liability  of  a  principal  debtor  to  his 
surety  or  gfuarantor  is  a  valuable  consideration  for  the 
execution  to  him  of  an  indemnity  mortg-agfe.  Bank  v. 
Stewart,  supra  ;  Stevens  z'.  Bell,  6  Mass.  342  ;  Buflfum 
V.  Green,  5  N.  H.  71  ;  Williams  v.  Silliman,  74  Tex. 
626,  12  S.  W.  534  ;  6  Am.  &  Eng-.  Knc.  Law  (2d  Ed.) 
709.  Had  Dickinson  himself  made  the  mortg-ag-e  to 
defendant,  he  certainly  could  not  successfully  resist 
foreclosure  on  the  g-round  that  there  was  no  leg-al 
consideration.  Neither  can  the  plaintiff,  acting-  as  a 
representative  of  creditors.  The  appointment  of  the 
receiver  was  in  the  nature  of  an  equitable  execution. 
By  it  the  court  was  able  to  reach  only  the  actual  inter- 
est of  the  debtor  in  the  property, — the 
interest  which  the  creditors  themselves  Jraewim"* 
migfht  have  reached  with  an  execution  issued 
on  a  judg-ment  at  law  in  their  favor.  The  judg-ment  is 
reversed,  and  the  cause  remanded,  with  direction  to 
the  district  court  to  render  a  decree  foreclosing-  the 
defendant's  mortgag-e  as  prayed. 


758  TAXATION  [VOIv  I 

Western  Invest.  Banking-  Co.  z'.  Murra)',  County  Treasurer 


Western  Investment  Banking  Co. 
Murray,   County  Treasurer. 

(Sufi  feme  Court  of  Arizona,  March  15,  i8gg.) 

Banks — Taxation  of  Shares — Assessment. — The  names  of  the 
shareholders,  and  the  correct  number  of  shares  owned  by  each,  were 
stated  in  a  bank-stock  assessment.  Held,  that  the  intent  was  not 
to  tax  the  capital  stock  of  the  bank,  but  the  shares  of  stock  owned 
by  the  individual  stockholders. 

Same — Same — Same. — Under  Act  No.  51  of  the  Laws  of  1897  of 
Arizona,  providing-  for  the  taxation  of  the  shares  of  all  banking" 
corporations,  and  making  it  the  duty  of  the  cashier  or  president  of, 
all  banks  to  pay  the  taxes  due  upon  the  shares  of  stock,  and  pro- 
tecting such  officer  in  such  payment  by  creating  a  lien  against  such 
shares  of  stock,  while.  properl3%  such  shares  should  be  listed  and 
assessed  in  the  names  of  the  holders  thereof,  their  assessment  in 
the  name  of  the  bank  is  a  mere  irregularity,  which  will  not  warrant 
equitable  interference. 

Banking  Associations — Definition. — It  appeared  that  plaintiff  was 
a  corporation  engaged  in  the  business  of  receiving  money,  and  in- 
vesting- it  for  its  depositors,  by  loaning  it  in  their  names,  and  also 
of  collecting-  rents,  and  interest  due  on  such  loans  as  it  might  make  ; 
that  the  interest  and  rents  thus  collected  were  subject  to  check  bj- 
those  for  whom  they  were  collected  ;  and  that  it  charged  a  commis- 
sion on  its  loans  to  the  borrowers,  and  also  a  commission  on  the 
collection  of  interest  and  rents  made  b^'  it.  Held,  that  plaintiff 
was  engaged  in  the  banking  business,  and  was  a  banking-  associa- 
tion within  the  meaning  of  such  statute  and  its  shares  of  stock 
were,  therefore,  taxable. 

Double  Taxation — Construction  of  Statute. — Such  statute,  prop- 
erly construed,  does  not  provide  for  double  taxation  in  the  case  of 
banking-  institutions,  and  under  its  provisions  the  shares  of  stock  in 
such  corporations  are  taxable,  and  not  the  corporate  property. 

Appeal  by  plaintiff  from  Maricopa  county  district 
court.     Affirmed. 

J.  B.   Woodzvard,  for  appellant. 

Baker  &  Bennett  and  Thomas  E.  Flannigan,  Dist. 
Atty.,  for  appellee. 

Sloan,  J.  The  Western  Investment  Banking- 
Company  brought   suit  in  the  court  below  ag-ainst  D. 


B  CAS]  TAXATION  759 

Western  Invest.  Banking-  Co.  v.  Murray,  County  Treasurer 

Iv.  Murray,  as  treasurer  and  ex  oj^cio  tax  collector  of 
Maricopa    county,   to    obtain    an    iniunction 

.  .  .  Case  Stated. 

agfainst  the  collection  of  a  portion  of  its 
taxes  assessed  for  the  year  1897.  The  bank  was 
assessed  for  the  said  year  upon  its  real  estate  and  per- 
sonal property,  valued  at  $7,045.10.  There  was  also 
placed  upon  the  assessment  roll  for  the  same  year, 
ag-ainst  the  name  of  the  bank,  property  described  as  : 
"Capital  stock  :  J.  Lutg-erding-,  1  share  ;  P.  Iv.  Kay, 
1  share  ;  P.  K.  Hickey,  10  shares  ;  S.  P.  Hoefer,  10 
shares;  M.  J.  Hickey,  150  shares, — value,  $9,125.00." 
The  bank  tendered  to  the  said  tax  collector  the  taxes 
due  on  its  real  estate  and  personal  property,  but  re- 
fused to  pay  the  taxes  assessed  upon  the  above 
described  property.  The  tax  collector  refused 
to  accept  from  the  bank  any  amount  of  its  taxes 
less  than  the  whole  amount  charged  ag^ainst  it,  and 
in  due  season  advertised  the  bank's  property  for 
sale  for  the  whole  amount  of  the  bank's  taxes  which 
had  become  delinquent ;  whereupon  the  bank  broug-ht 
this  suit  to  restrain  the  sale.  Judg-ment  was  entered 
by  the  court  below  denying  to  the  appellant  the  relief 
prayed  for,  or  any  relief  in  the  premises.  From  this 
judg-ment  the  bank  has  appealed. 

A  larg*e  number  of  assignments  of  error  are  set  up 
in  the  brief  of  appellant,  the  more  important  of  which 
we  will  consider  without  reg-ard  to  the  order  in  which 
they  are  set  out  In  the  brief.  Concisely  stated,  these 
assig-nments  are  based  upon  the  following- propositions: 
First,  that  the  assessment  objected  to  is  uncertain  and 
insufficiently  described,  in  that  it  does  not  appear  there- 
from whether  the  taxation  of  the  capital  stock,  or  the 
taxation  of  shares  of  stock,  of  the  bank,  is  intended  ; 
second,  that,  if  the  shares  of  stock  owned  by  the 
stockholders  of  the  bank  are  intended  to  be  taxed,  then 
the  same  are  illegally  assessed  in  the  name  of  the  bank; 
third,  that  the  appellant  is  not  of  the  class  of  corpora- 
tions, the  shares  of  stock  of  which  are  subject  to  taxa- 
tion ;  fourth,  that  the  taxation   of  the   real    estate    and 


760  TAXATION  [vol  I 

Western  Invest.  Banking-  Co.  v.  Murray,  County  Treasurer 

personal  property  of  the  bank,  and  also  of  its  shares  of 
stock,  is  double  taxation. 

The  questions  here  presented  involve  a  construction 
of  that  exceedingfly  crude  piece  of  leg-islation  known  as 
"Act  No.  51  of  the  Laws  of  1897."  This  act  reads  as 
follows  : 

"An  act  to  amend  an  act  entitled  'An  act  relating  to 
assessment  and  collection  of  taxes,'  approved  April 
13,  1893. 

"Be  it  enacted  by  the  legislative  assembly  of  the 
territory  of  Arizona  : 

"Section  1.  That  Act  No.  85  of  the  legislative 
assembly,  approved  April  13,  1893,  be  amended  so  as 
to  read  as  follows  :  That  all  shares  of  stock  of  every 
national  bank,  or  banking  association,  whether  organ- 
ized under  the  laws  of  this  territory,  or  of  any  other 
state  or  territory,  or  any  act  of  congress  of  the  United 
States,  and  doing  business  in  this  territory  shall  be 
assessed  and  taxed  in  the  county  where  such  national 
bank,  or  banking  association  is  located  for  the  trans- 
action of  business  ;  provided  that  nothing  herein  shall 
be  so  construed  as  to  tax  the  shareholders  of  such  na- 
tional banks  and  banking  associations,  at  a  greater  rate 
than  is  assessed  against  other  moneyed  capital  in  the 
hands  of  individuals. 

"Sec.  2.  That  all  shares  of  stock  of  every  corporation 
or  association  in  this  territory,  other  than  incorporated 
banking  associations  that  shall  engage  in  the  business 
of  banking,  in  buying  and  selling  exchange,  and  re- 
ceiving deposits,  shall  be  assessed  and  taxed  in  the 
count}'  where  such  association  or  corporation  is  located 
and  doing  such  business,  provided,  such  shares  shall 
not  be  at  a  greater  rate  than  is  assessed  against  other 
moneyed  capital  in  the  hands  of  individual  citizens  of 
the  territory. 

"Sec.  3.  That  every  person,  corporation  or  associa- 
tion, other  than  national  bmks,  and  corporations,  and 
associations  that  do  a  banking  business,  on  capital  stock 
divided  into,  which  is  represented  by  shares,  who  shall 
engage  in  the  business  of  banking,   buying  and  selling 


B  CAS]  TAXATION  761 

Western  Invest.  Banking-  Co.  Z'.  Murray,  County  Treasurer 

exchang-e,  and  receivino-  deposits  in  this  territory,  on 
capital  stock  not  represented  by,  or  divided  into  shares, 
shall  be  taxed  in  the  county  where  such  person,  corpo- 
ration, or  association  is  located  and  doing-  business,  on 
the  cash  value  of  such  capital  stock  to  be  estimated  on 
the  same  basis  of  valuation  as  other  moneyed  capital  in 
the  hands  of  individual  citizens. 

"Sec.  4.  The  shares  of  national  bank  stock  shall  be 
entered  and  taxed  in  the  name  of  the  shareholders  of 
the  several  shares  thereof  respectively  eng-ag-ed  in  the 
business  of  banking-,  and  whose  capital  stock  is  not 
divided  into  or  represented  by  shares,  shall  be  entered 
and  taxed  in  the  name  of  such  person,  corporation  or 
association. 

"Sec.  5.  Upon  the  demand  of  the  assessor,  the  presi- 
dent, cashier  or  other  officers  in  charge  of  an  incorpo- 
rated national  bank  association,  shall  make  out  and 
deliver  to  said  assessor,  a  sworn  statement  showing 
the  number  of  shares  of  said  national  bank  ;  the  name 
and  residence  of  each  shareholder  and  the  number  and 
amount  of  shares  owned  by  him.  Kvery  shareholder 
of  said  national  bank  shall,  in  the  town  or  city  where 
said  national  bank  is  located,  render  at  their  actual  cash 
value  to  the  assessor  of  taxes,  all  shares  owned  by  him 
in  such  national  bank  ;  and  in  case  of  his  failure  to  do 
so,  the  assessor  shall  list  and  assess  such  unrendered 
shares  as  other  unrendered  property.  The  taxes  due 
upon  the  shares  of  banking-  corporations  shall  be  a  lien 
thereon,  and  shall  be  paid  by  the  cashier  or  president 
of  such  national  bank  or  banking-  institution  and  shall 
be  a  lien  ag-ainst  and  assessed  to  such  shares  of  stock, 
and  no  banking-  corporation  shall  pay  any  dividends  to 
any  shareholder  who  is  in  default  in  the  payment  of 
taxes  due  on  his  shares  ;  nor  shall  any  banking-  cor- 
poration permit  the  transfer  on  its  books,  of  any 
shares,  the  owner  of  which  is  in  default  in  the  payment 
of  his  taxes  on  the  same.  That  the  taxes  due  on 
shares  of  national  banks  shall  be  a  lien  on  the  same, 
and  no  corporation  or  association  shall  permit  any 
•dividends  to  be  paid  to  any  holder  of  any  such  shares, 


762  TAXATION  [vol  I 

Western  Invest.  Banking-  Co.  v.  Murray,  County  Treasurer 

or  permit  any  transfer  of  the  same  on  its  books  until 
the  tax  thereon  shall  have  been  paid. 

"Sec.  6.  That  in  the  event  any  president,  cashier  or 
other  officer  in  charge  of  any  national  bank  or  other 
corporation  or  association  engag-ed  in  the  business  of 
bankino-  in  this  territory,  shall,  refuse,  on  the  demand 
of  the  assessor,  to  file  with  said  assessor,  a  sworn 
statement  showing*  the  number  and  amount  of  shares 
of  said  national  bank,  or  association  or  corporation,  the 
name  and  residence  of  each  shareholder,  and  the 
number  and  amount  owned  by  him,  as  demanded  ; 
the  said  assessor  shall  at  once  in  the  name  of  the  terri- 
tory, at  his  relation,  institute  proceeding's  in  mandamus, 
to  compel  the  statement  to  be  so  filed  ;  and  in  the  event 
of  such  failure  in  addition  to  the  taxes  due,  the  said 
officer,  president  or  cashier,  or  manag-ing*  ag"ent  so 
refusing-  shall  forfeit  an  amount  equal  to  double  the 
amount  of  said  taxes,  to  be  recovered  by  the  county  iu 
a  civil  action  as  for  debt,  and  g"o  into  the  school  fund  of 
such  county  where  such  national  bank  or  association 
is  located  ;  said  action  to  be  broug-ht  by  and  in  the 
name  of  said  county. 

"Sec.  7.   That  this  act  shall  take  effect,"  etc. 

A  cursory  reading*  of  the  act  will  disclose  bad 
punctuation,  many  omissions,  and  contradictory  pro- 
visions. Particularly  is  this  true  of  section  4  of  the 
act.  If  we  adhere  strictly  to  the  punctuation  and 
wording-  of  this  section,  the  result  is  miuifestabsurdit}^ 
and  inconsistency.  It  is  a  settled  rule  of  construction 
of  statute^  that  where  such  a  result  follows  a  strict 
adherence  to  punctuation  and  the  arrangement  of  words, 
phrases,  and  sentences,  evident  mistakes,  omissions, 
and  the  improper  use  of  words  may  be  remedied,  and 
even  the  structure  of  sentences  altered,  in  order  to 
arrive  at  the  purpose  and  intent  of  the  law.  In  sec- 
tion 4  there  is  evidently  an  omission  between  the  words 
"respectively"  and  "eng-ag-ed."  An  analysis  of  this 
section  and  of  the  preceding  one  will  mike  it  reason- 
ably certain  that  the  omitted  words  are,  "and  the  cap- 
ital stock  of  every  person,  corporation  or  association." 


B  CAS]  TAXATION  76S 

Western  Invest.  Banking  Co.  v.  Murray,  County  Treasurer 

By  inserting-  a  comma  after  the  word  "  respectively," 
and  adding-  thereafter  the  omitted  words  above  g"iven, 
the  section  will  then  read  :  "The  shares  of  national 
bank  stock  shall  be  entered  and  taxed  in  the  name  of 
the  shareholders  of  the  several  shares  thereof  respec- 
tively, and  the  capital  stock  of  every  person,  corporation 
or  association  eng-ag-ed  in  the  business  of  banking",  and 
whose  capital  stock  is  not  divided  into  or  represented 
by  shares,  shall  be  entered  and  taxed  in  the  name  of 
such  person,  corporation  or  association." 

1.  Was  the  assessment  in  question  one  upon  the 
capital  stock,  or  one  upon  the  shares  of  stock,  of  the 
bank  ?  There  is  a  clear  distinction  between  capital 
stock,    as   that  term    is   used    in   its  precise 

sense,  and  the  shares  of  stock,  of  a  corpora-  Banks-Taxation 
tion.     The    former  is    the  property    of  the  ment. 
corporation,  and   the  latter  is  the  property 
of   the  individual   holders   of  such  shares.     Inasmuch 
as   the    names   of    the    shareholders,    and  the    correct 
number  of    shares  owned  by  each,  in  the  Western  In- 
vestment Banking- Company,  were  stated  in  the  assess- 
ment, it  is  quite  evident  that  the  intent  was,  not  to  tax 
the  capital    stock  of  the  bank,  but  the  shares  of  stock 
owned  by  the  individual  stockholders. 

2.  Were  these  shares  of  stock  incorrectly  listed  and 
assessed  in  the  name  of  the  bank  ?  As  we  have  seen, 
the  correct  reading-  of  section  4  is  "that  the  shares  of 
national   bank    stock  shall    be    entered    and 

taxed  in  the  name  of  the  shareholders  of  the  Samer^"'""" 
several  shares  thereof  respectively,"  No 
reference  is  here  made  to  other  than  the  shares  of 
national  bank  stock.  By  the  provisions  of  section  6, 
however,  it  is  made  the  duty  of  the  officer  in  charg-e  of 
any  banking-  association,  upon  the  demand  of  the 
assessor,  to  file  with  this  officer  a  sworn  statement 
showing-  the  number  and  amount  of  shares  of  such 
corporation,  the  names  and  residences  of  the  share- 
holders, and  the  number  and  amount  of  shares  owned 
by  each.     If  the  purpose  of  the  act  was  to  provide  that 


764  TAXATION  [vol  I 

Western  Invest.  Banking  Co.  v.  Murray,  County  Treasurer 

only  the  shares  of  national  bank  stock  should  be 
entered  and  taxed  in  the  names  of  the  holders  the^^eof, 
then  the  provision  in  section  6  would  be  without  reason 
or  purpose.  We  think,  therefore,  the  intent  of  the  act 
was  to  provide  that  the  shares,  not  only  of  national 
banks,  but  also  of  other  corporations  or  associations 
enofag-ed  in  the  business  of  banking-  in  this  territor}', 
should  be  listed  and  assessed  in  the  names  of  the  indi- 
vidual holders  thereof.  Other  provisions  of  the  act, 
however,  make  it  the  duty  of  the  cashier  or  president 
of  all  banks  to  pay  the  taxes  due  upon  the  shares  of 
stock,  and  protect  such  officer  in  such  payment  by 
creating-  a  lien  ag-ainst  such  shares  of  stock,  and  in 
prohibiting"  such  banks  to  pay  any  dividends  to  any 
shareholder  who  is  in  default  in  payment  of  taxes  due 
on  his  shares,  and  in  prohibiting-  such  banks  from 
transferring-  on  the  books  any  shares  the  owner  or 
owners  of  which  may  be  in  default  in  the  payment  of 
the  taxes  due  on  the  same.  While,  properly,  shares  of 
stock  in  a  banking  institution  should  be  listed  and 
assessed  in  the  names  of  the  holders  thereof,  the  act, 
whether  or  not  it  makes  it  the  mandatory  duty  of  the 
ofificer  in  charg-e  to  pay  the  taxes,  at  any  rate  authorizes 
and  permits  such  payment  by  such  officer,  and  protects 
him  in  so  doing-.  The  relation  of  ag-ency  is  thus 
created,  and  it  therefore  makes  little  or  no  difference 
whether  the  shareholders  in  the  first  instance  pay  the 
taxes,  or  whether  the  manag-ing-  officer  of  the  corpora- 
tion pays  the  taxes  due  on  the  shares.  At  best,  the 
assessment,  therefore,  on  the  shares  of  stock  in  the 
name  of  the  bank,  is  a  mere  irreg-ularity,  and  one  which 
will  not  warrant  the  equitable  interference  of  the  court. 
It  has  been  repeatedly  held  that  where  the  objection  is 
to  the  mere  mode  of  taxation,  and  does  not  g-o  to  the 
justness  of  the  tax  itself,  equity  will  afford  no  relief. 
State  Railroad  Tax  Cases,  92  U.  S.  575  ;  Cooley, 
Tax'n,  p.  336. 

3.  It    is    claimed  by   the    appellant  that  it    is    not  a 
banking-  institution,  within  the  meaning-  of  section  1  of 


B  CAS]  TAXATION  765 

Western  Invest.  Banking-  Co.  i'.  Murray,  County  Treasurer 

the  act.  The  Western  Investment  Banking-  Company' 
is  a  corporation  org^anized  under  the  g^eneral 
incorporation  act  of  the  territory,  and,  as  fioSs-LaSon. 
appears  from  the  statement  of  its  cashier,  is 
eng-ag-ed  in  the  business  of  receiving-  money,  and 
investing-  it  for  its  depositors,  by  loaning-  it  in  their 
names,  and  also  of  collecting-  rents,  and  interest  due  on 
such  loans  as  the  bank  may  make.  The  interest  and 
rents  thus  collected  are  subject  to  check  by  those  for 
whom  the}'^  are  collected.  The  bank  charg-es  a  com- 
mission on  its  loans  to  the  borrowers,  and  also  a  com- 
mission on  the  collection  of  interest  and  rents  made  by 
it.  The  record  does  not  disclose  whether,  under  its 
articles  of  incorporation,  the  bank  is  thus  restricted  in 
its  business  or  not  ;  but,  assuming-  that  under  its 
articles  it  has  no  power  to  eng-ag-e  in  any  other  than 
its  present  business  as  described  by  its  cashier,  does 
it  properly  belong-  to  the  categ-ory  of  banking-  associa- 
tions ?  In  Warren  v.  Shook,  91  U.  S.  704,  Mr, 
Justice  Hunt,  speaking-  for  the  court,  said  :  "  Hav- 
ing- a  place  of  business  where  deposits  are  received, 
and  paid  out  on  checks,  and  where  money  is  loaned 
upon  security,  is  the  substance  of  the  business  of  a 
banker."  Ag-ain,  in  Oulton  z\  Institution,  17  Wall, 
109,  the  following-  definition  is  g-iven  of  a  bank  : 
"Strictly  speaking-,  the  term  'bank'  implies  a  place  for 
the  deposit  of  money,  as  that  is  the  most  obvious  pur- 
pose of  such  an  institution.  Originally  the  business 
of  banking-  consisted  only  in  receiving-  deposits,  such 
as  bullion,  plate,  and  the  like,  for  safe-keeping-,  until 
the  depositor  should  see  fit  to  draw  it  out  for  use.  But 
the  business,  in  the  progress  of  events,  was  extended; 
and  bankers  assumed  to  discount  bills  and  notes,  and 
to  loan  money  on  mortg-ag^e,  bond,  or  other  security, 
and  at  a  still  later  period  to  issue  notes  of  their  own, 
intended  as  a  circulating-  currenc}''  and  as  medium  of 
exchang-e,  instead  of  g-old  and  silver.  Modern  bank- 
ers frequently  exercise  any  two,  or  even  all  three,  of 
those  functions  ;  but  it  is  still  true  that  an  institution 
prohibited  from  exercising-  any  more  than  one  of  those 


766  TAXATION  [vol,  I 

Western  Invest.  Banking-  Co.  z'.  Murray,  County  Treasurer 

functions  is  a  bank,  in  the  strictest  commercial  sense." 
We  think,  under  these  definitions,  the  Western  Invest- 
ment Banking-  Company  is  now  eng-ag-ed  in  the  busi- 
ness of  bankinof,  and,  as  its  name  indicates,  is  a 
banking-  association,  within  the  meaning-  of  section  1 
of  said  Act  No.  51,  and  that  its  shares  of  stock  are 
therefore  taxable. 

4.  Was  the  taxation  of  the  bank's  real  estate  and 
personal  property,  and  also  of  its  shares  of  stock, 
illeg-al  because  in  conflict  with  parag-raph  2630,  Rev. 
St.,  which    declares    that    nothing-    in  the  revenue  act 

shall  be  construed  to  require  or  permit 
iiouMe Taxation-  double  taxatiou,  or  in  conflict  with  para- 
statute,  g-raph  2633,  which  reads  :   "Shares  of  stock 

in  a  corporation  possess  no  intrinsic  value 
over  and  above  the  actual  value  of  the  property  of  the 
corporation  for  which  they  stand  and  represent  and  the 
assessment  and  taxation  of  such  shares  and  also  of  the 
corporate  property  would  be  double  taxation.  There- 
fore all  property  belong-ing-  to  corporations  shall  be 
assessed  and  taxed,  but  no  assessment  shall  be  made 
of  shares  of  stock,  nor  shall  any  holder  thereof  be 
taxed  therefor."  Is  Act  No.  51,  given  above,  to  be 
construed  as  repealing-  the  provisions  of  these  sections 
in  so  far  as  they  pertain  to  the  assessment  of  shares  of 
stock  of  banks  and  banking  institutions  ?  The  princi- 
ple which  underlies  parag-raph  2633  is  that  the  taxa- 
tion of  shares  of  stock  in  a  corporation,  and  also  of  the 
corporate  property,  is,  in  effect,  taxation  of  the  same 
property.  Whether,  as  an  abstract  proposition,  this 
be  sound  or  not,  we  are  not  concerned,  inasmuch  as  it 
is  the  expression  of  the  leg-islative  will.  It  follows, 
then,  that  it  is  immaterial,  so  far  as  the  principle  is 
concerned,  whether  the  taxation  be  upon  the  property 
of  a  corporation  or  upon  the  shares  of  stock.  Under 
the  method  pointed  out  for  the  taxation  of  corporate 
property  in  parag-raph  2633,  national  banks,  under  the 
provisions  of  section  5219,  Rev.  St.  U.  S.,  escaped 
taxation  upon  all  of  their  corporate  property,  including- 
shares  of  stock,  except  such  real  estate  as   such  banks 


B  CAS]  TAXATION  767 

Western  Invest.  Banking  Co.  v.  Murray,  County  Treasurer 

mio-ht  hold.  It  is  doubtless  for  this  reason  that  the 
leg^islature  passed  the  act  approved  April  13,  1893,  of 
which  Act  No.  51,  Laws  1897,  is  an  amendment.  It 
is  hardly  conceivable  that  the  legislature,  even  if  it 
were  assumed  that  it  had  the  power  so  to  do,  would 
provide  for  what  it  has  termed  "double  taxation"  in 
the  case  of  banks  and  banking*  institutions,  while 
relieving'  all  other  corporations  within  the  territory 
from  this  burden.  A.  just  and  reasonable  construction 
put  upon  Act  No.  51  is  that  it  is  therein  intended  that 
all  corporations  within  the  territory,  including-  national 
banks,  which  otherwise  would  be  exempt,  shall  bear 
their  just  burden  of  taxation  ;  and,  in  order  to  effect 
this  purpose  in  the  case  of  banks,  the  shares  of  stock 
shall  be  assessed  and  taxed,  and  not  the  corporate 
property,  while  in  the  case  of  other  corporations  within 
the  territory  the  assessment  shall  be  upon  the  corporate 
property,  and  not  upon  the  shares  of  stock.  By  thus 
construing-  the  act,  consistency  is  g-iven  it,  and  it  is 
made  harmonious  with  the  clearly  expressed  policy  of 
the  revenue  laws  as  contained  in  paragraphs  2630,  2633, 
Rev.  St.,  which  neither  by  direct  reference  nor  by 
necessary  implication  are  repealed,  so  far  as  the  under- 
lying- principle  is  concerned,  by  either  the  act  approved 
April  13,  1893,  or  by  Act  No.  51  of  the  Laws  of  1897. 
The  theory  of  the  appellant  is  altog-ether  at  variance 
with  the  conclusion  we  have  reached  as  to  the  con- 
struction to  be  gfiven  to  Act  No.  51.  Relief  was  not 
sought  ag-ainst  the  enforcement  of  the  assessment  upon 
the  bank's  property,  but  was  soug-ht  against  the  en- 
forcement of  the  assessment  and  the  levy  of  taxes 
against  the  shares  of  stock  of  the  bank  ;  and  as  we 
have  held  that  the  latter  tax  is  valid,  and  there  is  no 
such  irreg-ularity  in  the  mode  and  manner  of  the  taxa- 
tion as  to  warrant  equitable  relief,  the  judg-meut  of 
the  court  below  must  be  affirmed. 

DoAN  and  Davis,  JJ.,  concur. 


768  FORGERY  [vol  I 

Nassau  Bank  v.  National  Bank  of  Newburg-h 


Nassau  Bank 

V. 

National  Bank  of  Newburgh  e^  at. 

[Court  of  Appeals  of  Neiu  York,  June  6,  iSgg.) 

Deposits  of  Money  Acquired  by  Forgery — Recovery  from  Bank 
Defrauded  by  Depositor. — When  a  bank  had  lost  a  certain  sum  by 
paying-  a  forg-ed  draft,  but  was  in  ignorance  of  such  loss,  the  forg-er 
deposited  that  amount  with  the  bank  and  disappeared  ;  and,  subse- 
quently, the  bank  discovered  its  loss,  and  another  bank  claimed  the 
deposit  as  the  proceeds  of  a  check  forged  by  the  same  person  and 
paid  by  it.  Held,  that  the  first-mentioned  bank  could  retain  the 
deposit  to  make  good  its  own  loss  ;  even  though  it  was  the  proceeds 
of  the  forged  check. 

Appeal  by  plaintiff  from  Second  department  appel- 
late division,  supreme  court,     Affiruicd. 

On  April  22,  1897,  Grant  B.  Taylor  opened  an  account 
with  the  plaintiff,  the  Nassau  Bank  ;  and  among-  other 
deposits  made  by  him  that  day,  and  credited  to  his 
account,  was  one  of  a  draft  for  S6,000  drawn  by  the 
Columbus  Trust  Company  of  Newburgfh,  N.  Y.,  upon 
the  Chase  National  Bank  of  the  City  of  New  York,  in 
favor  of  Charles  Currie.  Taylor  wrote  Currie's  name 
upon  the  back  of  the  draft,  and  then  his  own,  upon 
making-  the  deposit.  Upon  presentment  the  drawee 
paid  to  the  plaintiff  the  amount  of  the  draft.  Over  a 
month  later,  upon  being-  informed  by  the  Chase  Bank 
that  Currie's  indorsement  was  forg-ed,  and  a  demand 
being-  made  for  repayment,  the  plaintiff  repaid  to  it  the 
amount  collected  upon  the  draft.  It  appears,  and  such 
is  the  finding-  of  fact,  that  Currie  had  no  interest  in, 
nor  connection  with,  the  draft,  and  there  is  no  expla- 
nation offered  by  the  evidence  of  its  orig-in  or  purpose. 
Taylor  had  drawn  out  substantially  all  of  the  amount 
to  his  credit    with  the    plaintiff,  and  had    disappeared. 


B  CAS]  FORGERY  769 

Nassau  Bank  v.  National  Bank  of  Newburgh 

Thereupon  the  plaintiff,  findiuo-  that  the  sum  of  $2,400 
had  been  paid  to  the  defendant  the  Ne  wburg-h  Bank,  and 
was  still  on  deposit  there,  commenced  this  action  to 
recover  the  same,  as  part  of  the  proceeds  of  the  draft 
alleged  to  have  been  fraudulently  used  by  Taylor. 
Prior  to  opening-  the  account  with  the  Nassau  Bank, 
Taylor  had  drawn  out  of  the  Newburg-h  Bank,  the 
sum  of  $2,400,  by  means  of  forg-ed  checks  purporting- 
to  have  been  made  by  the  executors  of  the  estate  of 
John  Iv.  Aderton,  and  to  that  extent  had  diminished 
the  amount  to  the  credit  of  the  estate  in  the  bank. 
On  May  3d  he  deposited  with  the  Newburg-h  Bank  a 
check  for  $2,400  drawn  by  him  upon  the  plaintiff  to 
the  order  of  the  estate  of  John  Iv.  Aderton,  and  indorsed, 
also,  by  him,  "For  deposit  est.  John  Iv.  Aderton,  by 
G.  B.  Taylor."  The  amount  of  the  deposit  was 
credited  to  that  estate,  and  the  check  was  collected 
from  the  plaintiff  ;  the  payment  being-  charg-ed  by  it  to 
Taylor's  account.  At  the  time  when  the  deposit  of 
$2,400  was  made,  neither  the  Newburg-h  Bank  nor  the 
executors  of  Aderton's  estate  were  aware  of  Taylor's 
forgeries,  and  the  consequent  loss  thereby  of  that 
amount  of  money  ;  nor  were  the  latter  aware  of  the 
deposit,  which  made  good  the  amount  theretofore  with- 
drawn from  the  estate  account,  until  the  commencement 
of  this  action,  wherein  they  are  made  parties  defend- 
ants. The  referee  found  against  the  plaintiff,  and 
directed  a  judgment  dismissing  its  complaint,  which 
judgment  was  affirmed  by  the  appellate  division,  in 
the  Second  department. 

John  M.  Garchier,  for  appellant. 
Hoxvard  Thorutoii,  for  respondents. 

Gray,  J.  (after  stating  the  facts).  I  think  that  the 
case  was  correctly  decided,  and  that  little  need  be  added 
to  what  has  been  already  said.  The  circumstances 
were  very  peculiar  with  respect  to  the  draft  for  $6,000 
which  Taylor  caused  to  be  collected  and  placed  to  his 
credit.  The  payee,  Currie,  had  no  knowledge  of  nor 
interest  in  it,   as  he  testified,  and  it  would  appear  that 

B  CAS— 49 


770  FORGERY  [vol  I 

Nassau  Bank  v.  National  Bank  of  Newburg-h 

his  name  had  been  made  use  of  in  some  way  and  for 
some  purpose  which  are  not  explained.  Whether, 
however,  the  draft  was  made  payable  to  a  fictitious 
payee,  thouj^h  an  existent  person,  and  hence,  as  one 
payable  to  bearer,  was  effective  to  pass  title  to  its  pro- 
ceeds when  collected  by  the  plaintiff  bank,  is  a  question 
which  nii^ht  well  admit  of  assertion  and  discussion  upon 
the  facts.  See  Coo-^ill  v.  Bank,  1  N.  Y.  113  ;  Phillips 
V.  Bank,  140  N.^Y.  556,  35  N.  E.  982.  But  it  is 
unnecessary,  when  the  decision  of  the  case  may  rest 
upon  plain  and  well-settled  leg-al  propositions.  The 
situation  may  be  said  to  be,  in  certain  aspects,  new  ; 
but  I  see  no  g-ood  reason  for  denyin"-  to  it  the  applica- 
tion of  the  rule  that  when  money  has  been  received  by 
a  person  in  o-ood  faith,  in  the  usual  course  of  business, 
and  for  a  valuable  consideration,  it  cannot  be  pursued 
into  his  hands  by  one  from  whom  it  has  been  obtained 
throu«-h  the  fraud  of  a  third  person.  If  it  has  been  used, 
as  it  is  claimed  in  the  present  case,  to  pay  an  indebted- 
ness owino-  by  the  third  person,  with  innocence  in  the 
recipient,  there  is  a  consideration  for  its  payment  by 
him,  which,  despite  the  fraud  throug-h  which  the  money 
was  obtained,  and  for  reasons  based  upon  policy  and 
the  need  for  such  security  in  ordinary  commercial 
transactions,  supports  and  protects  its  possession 
ag-ainst  the  world.  The  foUowino-  cases  establish  and 
will  illustrate  the  application  of  these  principles  : 
Justh  V.  Bank,  56  N.  Y.  478  ;  Stephens  v.  Board,  79 
N.  Y.  183  ;  Hatch  v.  Bank,  147  N.  Y.  184,  41  N.  K. 
403. 

But  it  is  the  claim  of  the  appellant  that,  conceding- 
the  doctrine  of  the  cases,  it  is  not  available  in  the 
present  case,  for  the  reason  that  the  money  paid  into 
the  Newburg-h  Bank  by  Taylor  was  not  received  or 
accepted  by  it  with  knowledg-e  of  his  forgeries.  It  is 
arg-ued  that  the  mere  deposit  by  Taylor  of  the  money, 
without  the  knowledg-e  of  or  the  acceptance  by  his 
creditor,  could  not  constitute  payment,  within  the  rule. 
I  am  unable  to  recog-nize  the  force  of  the  contention. 
Taylor  was  a  debtor,  by  reason  of  his  forg-eries,  as  well 


B  CAS]  FORGERY  771 

Nassau  Bank  v.  National  Bank  of  Newburg-h 

to  those  who  were  injuried  in  their  property  rigfhts 
thereby,  as  to  the  law  for  his  criminal  act  ;  and  it  is  of 
no  conceivable  importance,  in  my  opinion,  that  the 
existence  of  the  fact  of  indebtedness  should  be  unknown 
at  the  time  when  he  soug^ht  to  make  reparation  by 
repaying-  the  moneys  feloniously  taken.  Having-  made 
the  payment,  he  could  not  reclaim  it,  and  no  interest  in 
the  moneys  remained  in  him.  It  satisfied  the  claim 
which  the  bank  undoubtedly  possessed  ag^ainst  him, 
and  discovery  or  knowledg^e  of  such  a  claim  w^as  not 
necessary  to  its  existence.  Nor  is  it  of  consequence  as 
to  how  the  payment  operated  in  its  mode.  He  conceived 
that  he  had  despoiled  the  Aderton  estate,  and  therefore 
made  the  payment  in  such  form  as  to  reimburse  it  ;  but 
the  fact  was  that  the  bank's  claim  ag-ainst  him  was 
satisfied,  and  that  the  credit  of  the  amount  to  the  estate 
upon  the  account  in  the  bank's  books  satisfied  theclaim 
of  Aderton's  executors.  The  bank  received  the  money 
lost  throug-h  the  forg-eries,  and  it  became  the  debtor  of 
the  executors  for  the  money  received.  Taylor's  plan, 
evidently,  was  to  make  restoration  in  such  a  form  as 
that  his  forgferies  would  not  be  exposed.  I  think  Mr. 
Justice  Culeen,  who  delivered  the  opinion  at  the 
appellate  division,  admirably  expressed  it  when  he  said  : 
"  Where  one  person  defrauds  another  so  skillfully  that 
the  party  defrauded  is  ig-norant  of  his  loss,  and  restitu- 
tion is  made  so  adroitly  that  it  does  not  disclose  the 
orig-inal  offense,  does  any  different  rule  obtain  from  a 
case  where  one  confesses  his  fault  and  openly  makes 
restitution  ?  We  apprehend  that  there  can  be  no  dis- 
tinction between  the  two  cases,  and  that  the  very  state- 
ment of  the  question  precludes  the  possibilit}^  of  but 
one  answer."  I  think  that  the  judg-ment  should  be 
affirmed,  with  costs.     AUconcur.     Judg-ment  affirmed. 


INDEX  TO  NOTES. 


ACCOMMODATION     PAPER. 

See  Bills  and  Notes. 
National  Banks. 
Corporations  as  endorsers  of,  39. 

ACTIONS. 

See  Limitation  of  Actions. 
Action      by     creditors      ag-ainst 

directors,  456. 
Jurisdiction    of    action    ag-ainst 

national     bank    directors    for 

false   reports,  524. 
Jurisdiction  of  action  by  receiver 

of  national  bank,  441. 

AGENCY. 

See  Officers  and  Age^ifs. 

Duty  of  ag-ent  where  authority 
is  ambig-uous,  138. 

Fidelity  to  principal's  instruc- 
tions, 138. 

Ratification  by  principal,  138. 

ATTACHMENTS. 

Assets  in  custody  of  law,  80. 
Priority,  517. 

BANKS. 

See  Deposits. 
Collections. 

Bank  becomes  purchaser  of 
paper  which  it  has  credited 
to  depositor's  account,  where 
he  has  drawn  out  amount  so 
credited  before  notice  to 
bank,  300. 

Custom  of  London  banks  as  to 
forwarding  draft  to  drawee 
bank,  285. 

Effect  of  crediting-  paper  when 
received  as  cash,  102. 

Effect  of  forwarding-  draft  to 
drawee  bank,  285. 

Effect  on  title  of  check  depos- 
ited for  collection  of  bank 
custom  to  credit  as  cash,  102. 

Liability  iov  negligence  of 
notary,  304. 


BANKS— Cow //■««£•«'. 

Presentment  by  mail,  285. 

Relation  of  bank    and   depos- 
itor, 723. 

Selecting  drawee  bank  as  cor- 
respondent, 284. 

Title   to    paper    endorsed    for 
collection,  296. 
Implied  power  to  borrow  monej^ 

441. 
Payment  of  check  to  which  de- 
positor's  signature   is  forged, 

176. 
Power  to  deal  in  stocks,  644. 
Refusal  to  honor  checks,  views 

for    and    against    liability    to 

holder,  190. 
Setting  off   trust  funds  against 

depositor's  debt,  75. 
Set-off,  47. 

BILLS  AND  NOTES. 

See  Accommodation  Paper. 

En  do  rsemen  ts . 

Protest. 
Accommodation  paper  may  be 
recovered  on  by  holder  though 
he  knew  of  its  nature,  712. 
Failure  or  absence  of  considera- 
tion no  defense  against  bona 
fide  holder  before  maturity, 
300. 

BILLS  OF  LADING. 

Rights  of  pledgee,  125. 
Surrender    before    payment    of 
draft,  137. 

BOOKS. 

See  Evidence. 

CASHIERS. 

See  Officers  and  Agetits. 

CERTIFICATES  OF  DEPOSIT. 

See  Deposits. 


774 


INDEX  TO  NOTES 


CHECKS. 

Amount   recoverable  by   holder 

of  check  for  refusal  of  bank  to 

honor  it,  197. 
Bank's  rig^ht  to  recover  amount 

paid  out   on  raised  check,  119. 
Depositor    not    liable    for    pay- 
ment  of   check   on  forg'ed  en- 
dorsement, 515. 
Effect  on  title  to  check  deposited 

for  collection  of  bank  custom 

to  credit  as  cash,  102. 
Eiability   of   bank    paying    out 

money    on    check    signed  with 

forged  signature,  176. 
Presentment    of   check    on  local 

bank,  687. 
Reasons  for  Affirming  Liability 

of  Bank  to  Holder  for  Refusal 

to  Honor  Check. 

Assignment,  197. 

Implied  contract,  196. 

Promise  to  one  for  benefit  of 
another,  197. 
Reasons  for  Denying  Liability  of 

Bank  to    Holder  for  Refusal  to 

Honor  Check. 

Double  action,  194. 

No  assignment,  192. 

Splitting  cause  of  action,  194. 

Want  of  privity,  190. 
Right  of  Holder  Where  Bank  Re- 
fuses to  Honor  Check. 

Check  for  amount  greater  than 
deposit,  195. 

Check  for  amount  of  deposit, 
195. 

COLLECTIONS. 

See  Banks. 

CONSIDERATION. 

Absence  or  failure  of,  no  defense 
against  bona  fide  holders 
before  maturity,  300. 

CORPORATIONS. 

Accommodation  endorsements, 
39. 

CREDITORS. 

Dividends  of  Secured  Creditors. 
General  rule,  88. 
Minority  rule,  88. 


CREDITORS— Cow/zwz^^fi^. 

Rights  of,  where  fraudulent 
dividend  has  been  declared, 
736. 

DEPOSITS. 

See  Set-off. 

Certificate  must  be  delivered  on 
payment  of  deposit,  369. 

Follosving  trust  deposits,  497. 

Knowledge  of  insolvency  invali- 
dating transfer  of  deposit  by 
national  bank,  210. 

Presumption  of  ownership  of 
deposit  by  officials  and  trus- 
tees, 497. 

Rights  of  depositor  upon  insol- 
vency of  bank,  506. 

Taxation  of  deposits  in  savings 
banks,  318. 

Title  to  deposit  as  between  bank 
and  general  depositor,  95. 

Verbal  transfer,  210. 

DIRECTORS. 

Action  by  creditors  against,  456. 

False  reports,  480. 

False  reports   by  national  bank 

directors,  524. 
Negligence  in   supervision,  564. 

Preferences. 

View    that    directors   may   be 

preferred,  631. 
View  that  directors   may   not 
be  preferred,  632. 
Statute  of   limitation   in   action 
against  for  misappropriation, 
540. 

DISHONOR. 

Service  of  notice  of,  152. 

DIVERSION. 

See  Trust  Funds. 

DIVIDENDS. 

See  Creditors. 

Fraud  in  declaring,  736. 

Rights  of  creditors  where  fraud- 
ulent dividends  have  been  de- 
clared, 736. 

Rights  of  creditors  where  fraud- 
ulent stock  dividend  has  been 
declared,  736. 


INDEX  TO  NOTES 


775 


DIVIDENDS— 0«//«?^^rt'. 

Statutory  liability  of  directors 
does  not  exonerate  stockholder 
receiving-  fraudulent  dividend, 
736. 

DOCUMENTARY  EVIDENCE. 
See  Evidence. 

ENDORSEMENTS. 

Effect  of  endorsement  in  blank, 
98. 

Forged  endorsement  as  affecting- 
depositor,  515. 

Warrant  of  endorser  as  to  ca- 
pacity of  antecedent  parties, 
152. 

ESTOPPEL. 

Ultra  vires  as  defense  to  ex- 
ecuted contract,  31. 

EVIDENCE. 

Corporate  books  as  evidence, 
367. 

EXEMPTIONS. 

See  Taxation. 

FALSE  REPORTS. 

See  Directors. 

FORGERY. 

Sig-nature  of  depositor  forged  to 
check — bank's  liability,  176. 

INSOLVENCY. 

See  Preferences. 

Interest  on  claims  ag-ainst  insol- 
vent bank  pending-  adminis- 
tration, 296. 

Knowledge  of,  invalidating- 
transfer  of  deposit  by  national 
bank,  210. 

Power  of  insolvent  national 
bank  to  secure  subsequent 
debt,  271. 

Priority  of  cestui  que  trust,  384, 

Rights  of  depositor,  506, 

What  constitutes,  676. 

INTEREST. 

Interest  on  claims  against  in- 
solvent bank  pending  admin- 
istration, 296, 


JUDGMENTS. 

Variance  in  corporate  name   in, 

84. 

JURISDICTION. 

See  Actions. 
Receivers. 

LICENSES. 

Exemption  of  stock  frotn  tax- 
ation does  not  exempt  corpo- 
ration from  license  tax,  16. 

LIMITATION  OF  ACTIONS. 

Action  against  directors  for  mis- 
appropriation, 540. 

MANDAMUS. 

Stockholder's  right  to  inspect 
corporate  books  enforceable 
by,  378. 

NATIONAL  BANKS. 

Accommodation  endorsements, 
656. 

Action  against  directors  for 
false  reports,  524. 

Interest  on  claims  pending  ad- 
ministration of  affairs  of  in- 
solvent bank,   296. 

Knowledge  of  insolvency  inval- 
idating transfer  of  deposit,  210. 

Liability  on  ultra  vires  contract, 
93. 

Penalty  for  usurj',  739. 

Pleading-  corporate  existence,  31. 

Power  of  insolvent  national 
bank  to  secure  subsequent 
debt,  271. 

Preference  by  insolvent  na- 
tional bank,  677. 

State  laws  as  to  usury  as  affect- 
ing, 18. 

State  taxation  of,  316. 

Taxation  of  personal  assets  of, 
348. 

Taxation  of  personal  assets  of 
insolvent  national  banks,  349. 

NEGLIGENCE. 

.SVi;'  Directors. 

NOTARY. 

Liability  of  collecting  bank  for 
negligence  of,  304. 


776 


INDEX  TO  NOTES 


NOTICE. 

See  Protest. 

Notice  to  cashier  as  notice  to 
bank,  28. 

Notice  to  one  receiving  com- 
pany's securities  from  officer 
in  paj'ment  of  a  personal  debt, 
595. 

Reason  of  rule  that  notice  to 
agent  acting  in  his  own  in- 
terest is  not  notice  to  corpo- 
ration, 24. 

Service  of  notice  of  dishonor, 
152. 

When  knowledge  of  officers  is 
not   notice  to    corporation,    23. 

OFFICERS  AND  AGENTS. 
See  Agency. 
Directors. 
Cashier's  Powers. 

Collection  and  compromise  of 

claims,  613. 
Endorsement   and  transfer  of 

securities,  614. 
General  powers,  611. 

Notice  to  cashier  as  notice  to 
bank,  28. 

Officer  paying  personal  debt 
with  company's  securities  — 
notice  to  purchaser,  595. 

Officer  using  knowledge  to  ob- 
tain preference,  631. 

President's  power  to  release  and 
satisfy  claims,  601. 

Reason  of  rule  that  notice  to 
ag-ent  acting  in  his  own 
interest  is  not  notice  to  corpo- 
ration, 24. 

Trustees  of  savings  banks,  145. 

When  knowledge  of  officers  is 
not  notice   to  corporation,    23. 

PLEADING. 

Corporate  existence  of  national 
banks,  31. 

RLEDGE. 

See  Bills  of  Lading. 

Slock. 

PREFERENCES. 

See  Directors. 

Intention  of  insolvent  bank  to 
prefer,  669. 


PREFERENCES— Co«/'/«M,fa'. 
Officer  using  knowledge  to    ob- 
tain preference,  631. 
Preference  by  insolvent  national 
bank,  677. 

PRESENTMENT. 

See  Checks. 
Presentment  by  mail,  285. 

PROTEST. 
Notice. 

Description  of  paper,  162. 
Description  of  paper  where  it 

is  applicable  to  either  of  two 

instruments,  163. 
Effect  of  actual  receipt  of,  156. 
How  given,  154. 
Illegibility   of   maker's  name, 

165. 
Illustrations     of      immaterial 

misdescription    or    omission 

in     describing     instrument, 

162. 

Misdescription   of  maker,  164. 
New     Jersey    doctrine     as    to 

effect    of    omitting   maker's 

name,  165. 
New  York  doctrine  as  to  effect 

of   omitting   maker's  name, 

165. 

Notices  betXveen  distant  post- 
offices  in  same  city,  155. 

Question  of  propriety  of 
method  of  transmission  is 
for  court,  155. 

When  mail  service  is  sus- 
pended, 155. 

Where  parties  reside  in  differ- 
ent villages  of  same  munici- 
pality, 155. 

Where  person  to  be  charged 
does  not  reside  at  place  of 
protest,  154. 

Where  person  to  be  charged 
has  place  of  business  within 
city  limits,  156. 

Where  person  to  be  charged 
receives  mail  in  one  town 
and  resides  in  another  post 
town,  156. 

Where  person  to  be  charged 
resides  at  place  of  protest, 
134. 


INDEX  TO  NOTES 


777 


FROTEST— Continued . 

Where  person  to  be  charg-ed 
resides  at  unreasonable  dis- 
tance  from    post-ofiice,    155. 

Where  person  to  be  charged 
resides  outside  of  city  limits, 
but  receives  mail  therein, 
156. 

RECEIVERS. 

Collateral  attack  against  valid- 
ity of  appointment,  80. 

Jurisdiction  of  action  by  re- 
ceiver of  national  bank,  441. 

Iviability  for  tax  on  stock  of 
insolvent  corporation,  324. 

Liability  of  petitioners  for  com- 
pensation of,  52. 

REPORTS. 

See  Directors. 

SAVINGS  BANKS. 

See   Taxation. 
Relation  of  trustees  to  bank  and 
depositors,  145. 

SET-OFF. 

Bank's  rig-ht  of,  47. 

Moneys  must  belong-  to  depos- 
itor to  enable  bank  to  set-off, 
48. 

Setting  off  trust  funds  ag^ainst 
depositor's  debt,  -75. 

STATUTES. 

Statutes  imposing  double  liabil- 
ity on  stockholders  construed, 
366. 

Statutory  provisions  as  to  right 
to  vote  pledg^ed  stock,  72. 

STOCK. 

Exemption  of,  from  taxation  as 
affecting  taxation  of  property, 
franchises,  etc.,  15. 

Iviability  of  receiver  for  tax  on 
stock  of  insolvent  corpora- 
tion, 324. 

Taxation  of  stock  held  by  non- 
residents, 4. 

Pledge. 

Right  to  vote  pledged  stock,  72. 


'S>110G'K.-~Contimied. 

Right   to   vote   pledg^ed    stock 

standing  in  pledgor's  name, 

72. 
Statutory      provisions     as    to 

right  to  vote  pledged  stock, 

72. 

STOCKHOLDERS. 

Books   as   evidence   of  member- 
ship, 367. 
Construction  of  statutes  impos- 
ing double  liability,  366. 

Inspection  of  Books. 

Rule  at  common  law,  377. 
Rule  as  qualified,  378. 
Statutory  provisions,  378. 
Stockholder's  agent,  378. 
Stockholder  maj'  enforce  right 
by  mandamus,  378. 

Judgment  against  corporation  a 
condition  prerequisite  to  en- 
forcement of  statutory  liabil- 
it3',  365. 

Statutory  liability  of  director 
does  not  exonerate  stockholder 
receiving  fraudulent  dividend, 
736. 

Who  may  enforce  statutory 
liabilit)',  354. 

TAXATION. 

Exemption  of  stock  as  affecting 
taxation  of  property,  fran- 
chises, etc.,  15. 

Exemption  of  stock  from  taxa- 
tion does  not  exempt  corpora- 
tion from  license  tax,  16. 

Personal  assets  of  national 
banks,  349. 

Personal  assets  of  insolvent 
national  banks,  349. 

Savings  Bank. 

Federal  statute   as  to  taxation 
of  deposits  in,  318. 

Taxation  of  deposits  in,  318. 
State  taxation  of  national  banks, 

316. 
Stock   held  by    non-residents,  4. 


TORTS. 

Liability     of      corporation 
ultra  vires  torts,  408. 


for 


778 


INDEX  TO  NOTES 


TRUST  DEPOSITS. 

See  Deposits. 

TRUST  FUNDS. 

Diversion  and   recovery   of,  696. 
Identification  of,  697. 
Setting   off,   ag-ainst  depositor's 
debt,  75. 

ULTRA  VIRES. 

Estoppel  to  set  up,  as  defence  to 

executed  contracts,  31. 
Lending-  corporate  credit  is,  39. 
Liability      of     corporation      for 

ultra  vires  torts,  408. 


ULTRA  'V1R¥1S— Continued. 
Liability    of   national    bank   on 

ultra  vires  contract,  93. 
When   and    by    v^hom    plea    of 

ultra  vires  can  and  cannot  be 

raised,  36. 

USURY. 

Penalty  against  national  banks 

for,  739. 
State  laws   and   national  banks, 

18. 

VOTING  STOCK. 

See  Stock. 


GENERAL  INDEX. 


ACCOMMODATION    PAPER. 

See  Bills  ajid  Notes. 

ACTIONS. 

Decisioa  of  federal  court  that 
action  is  not  within  jurisdic- 
tion of  such  court  is  binding- 
on  state  court. 

Gerner  v.  Mosher  et  a/.  (Neb.), 
457. 
Equity  jurisdiction  of  action 
against  national  bank  direct- 
ors for  misappropriation  of 
funds. 

Cooper  etal.  v.  Hill  (C.  C.  A.), 
524. 
Federal   jurisdiction    of   actions 
ag-ainst  national  banks. 
First     Nat.     Bank    of     Grand 
Forks,    N.    D.     v.    Anderson 
(U.  S.),  89. 
Jurisdiction     of    action    against 
national  bank  receiver. 
Auten    V.    United  States    Nat. 
Bank  of  New   York  (U.  S.), 
416. 
Jurisdiction    of   state   court    not 
taken    by    an    application    for 
removal  to  federal  court,  where 
it    appears    from    the    face    of 
the   record  that    the   action  is 
not  removable. 

Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 
Misjoinder  of  parties. 

Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 
Parties     to    action     to     enforce 
stockholder's  statutory   liabil- 
ity. 

Zang-   et  at.    v.    Wyant   et   al. 
(Colo.),  349. 

AGENCY. 

Agent's  discretion  in  interpreta- 
tion of  instructions. 
Oxford    Lake     Line    v.     First 
Nat.    Bank     of      Pensacola 
(Fla.),  126. 


AXj^'^OY—Cojitinued. 
Ambiguous  authority. 

Oxford     Lake    Line    v.    First 
Nat.     Bank      of     Pensacola 
(Fla.),  126. 
Bank's  being  pledgee  of  part  of 
corporation's    stuck   does    not 
make  the  latter  its  agent. 
National   Bank   of   Commerce 
in  Denver   v.  Allen  et  al.  (C. 
C.  A.),  53. 
Deviation  from  instructions. 
Oxford    Lake    Line     v.    First 
Nat.     Bank    of      Pensacola 
(Fla.),  126. 
Fact  of  two  corporations  having 
a    common     officer    does     not 
make    one   the    agent   of    the 
other. 

National    Bank  of    Commerce 
in  Denver  v.  Allen  et  al.  (C. 
C.  A.),  53. 
Judgment  against  agent. 

Rudd   et  al.    v.    Deposit   Bank 
(Ky.),  157. 

Ratification. 

Ratification    of    unauthorized 
acts. 

Oxford   Lake  Line    v.  First 
Nat.     Bank    of  Pensacola 
(Fla.),  126. 
Ratification   with    knowledge, 
or  opportunity  of  knowledge, 
of  all  material  facts  must  be 
shown  by    party   seeking    to 
bind  principal  on  the  ground 
of    ratification    of  unauthor- 
ized act. 

Oxford  Lake  Line  v.  First 
Nat.  Bank  of  Pensacola 
(Fla.),  126. 

APPEAL. 

Finding  not  reviewed  where 
evidence  is  conflicting  if  evi- 
dence is  sufficient  to  support 
it. 

Schmelling    v.     State     et     al. 
(Neb.),  670. 


780 


GENERAIv  INDEX 


A.'P'P'EIA.'L,— Continued. 
New  evidence. 

Zang    et    al.    v.    Wyant  et  al . 
(Colo.),  349. 
Questions  for  review. 

Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 
Review. 

Zang-   et  al.    v.    Wyant   et  al. 
(Colo.),  349. 
Review  of  questions  of  fact. 
First  Nat.  Bank  of  Cambridge, 
111.  V.  Hall  et  al.  (Ala.),  198. 
Right  of,  in  federal  courts. 

Merrill  v.  National  Bank  of 
Jacksonville  (U.  S.),  210. 

ASSESSMENTS. 
See  Stock. 

ASSIGNMENTS. 
Illegal  preferences. 

Dickson  et  al.  v.  Baker  et  al. 
(Minn.),  140. 

ATTACHMENT. 

Attachment  of  assets  of  insol- 
vent bank  in  custody  of  exam- 
iner. 

Andrews   v.  Steele  Citv  Bank 
et  al.  (Neb.),  76. 
Bank  cashing  draft  attached  to 
bill  of  lading  has  title  to  goods 
as  against   attaching  creditor. 
American     Trust     &    Savings 
Bank  V.  Austin  et  al.  (N.  Y.), 
122. 
Check    drawn    before,    but    pre- 
sented after  service  of  attach- 
ment   has    priority    over  such 
attachment. 

Winchester  Bank  v.  Clark 
County  Nat.  Bank  (Ky.), 
515. 

"ATTEST." 
Definition. 

Gerner  v.  Mosher  et  al.  (Neb.), 

457. 

BANKING  ASSOCIATIONS. 

See  Banks. 

BANKRUPTCY. 

See  Dividends. 


BANKS. 

See  Insolvency. 
Bank  cashing  draft  attached  to 
bill  of  lading  has  title  to  goods 
as  against  attaching  creditor. 
American     Trust     &    Savings 

Bank  v.  Austin  et  al.  (N.  Y.), 

122. 
Bank  defrauded  by  a  depositor 
can  retain  a  deposit  made  by 
him  with  it  to  cover  its  loss, 
even  though  such  deposit  is 
from  the  proceeds  of  a  forged 
check  passed  on  another  bank. 
Nassau  Banki;.  National  Bank 

of  Newburgh  et  al.  (N.  Y.), 

768. 
Bank    holding    corporate    stock 
in    pledge    is   not   required  to 
give  public  notice  of  debt. 
National   Bank  of   Commerce 

in  Denver  v.  AM^n  et  al.  (C. 

C.  A.),  53. 
Banking  associations  defined. 
Western       Investment      & 

Banking     Co.      v.     Murray, 

County  Treasurer,  (Ari- 
zona), 758. 
Bank  paying  out  to  depositor  of 
check  amount  called  for  by 
check  becomes  purchaser  of 
such  check. 
Taft    V.    Quinsigamond    Nat. 

Bank  (Mass.),  99, 
Bank's     liability     for     notary's 
negligence    in   sending  notice 
of  protest. 
First  Nat.    Bank  of    Manning 

V.   German   Bank  of  Carroll 

County  et  al.  (Iowa),  300. 
Bank's  lien   on  funds  deposited 
by  agent. 
First   Nat.    Bank   of   Sharon, 

Pa.  V.  Valley    State  Bank  of 

Hutchinson    et    al.     (Kan.), 

698. 
Cashier's  power  to  bind,  by  con- 
tract. 
Valdetero  v.  Citizens'  Bank  of 

Jennings  et  al.  (La.),  601. 

Collections. 

Bank  forwarding  paper  to  sec- 
ond bank  for  collection  is 
not  entitled  to  preference 
upon    the  insolvency   of  the 


GENERAL  INDEX 


781 


BANKS— Cow /zV/K^o'. 

latter  where  such  collections 
did  not  increase  insolvent's 
assets. 

Midland  Nat.  Bank  of  Kan- 
sas    City     V.      Brightwell 
(Mo.),  379. 
Collecting-       bank      receiving- 
check  to    pay    draft  has,     as 
between  itself  and  drawer  of 
the  check,  until  close  of  busi- 
ness hours  on   next  secular 
day  to  present  ii. 
Morris  v.  Euf  aula  Nat.  Bank 
(Ala.),  677. 
Collection   of  bill  of  exchange 
having-    bill    of    lading     at- 
tached. 

Oxford  Lake    Line  v.  First 
Nat.    Bank   of    Pensacola 
(Fla.),  126. 
Customs. 
Kershaw    v.     Ladd     ei      al. 
(Ore.),  271. 
Forwarding   draft   to  drawee. 
Minneapolis   Sash    &    Door 
Co.  V.   Metropolitan  Bank 
(Minn.),  286. 
Insolvent  mingling  collections 
with  its  own  funds. 
Union  Nat.  Bank  v.  Citizens' 
Bank  of  Union  City  et  al. 
(Ind.),  712. 
Liabilitj^    for    negligence     in 
making. 

Kershaw     v.      Ladd    et     al. 
(Ore.),  271. 
Limiting  liability. 

Minneapolis   Sash    &    Door 
Co.  V.   Metropolitan  Bank 
(Minn.),  286. 
Usage  and  custom  of  forward- 
ing check  to  drawee. 
Minneapolis    Sash    &     Door 
Co.   V.   Metropolitan  Bank 
(Minn.),  286. 
"Whether  bank  receiving  paper 
for     collection    is   agent   or 
debtor  of  depositor. 
Guignon  v.   First  Nat.  Bank 
of   Helena   et  al.   (Mont.), 
290. 
Discounting  accommodation 
paper   with  knowledge  on  the 
part   of  the  bank's  officers  of 


^KYi'KB— Continued. 

its   nature    does    not    prevent 
recovery  thereon. 
Israel  v.  Gale  (U.  S.),  705. 
Examination  of  books  by  stock- 
holder. 

State  ex  rel.  Burke  v.  Citi- 
zens' Bank  of  Jennings 
(La.),  369. 

Forgery. 

Negligence  in  paying  forged 
check. 

First  Nat.  Bank  of  Marshall- 
town       V.       Marshalltown 
State  Bank  (Iowa),  179. 
Paying  forged  check. 

Neal  et  al.  v.  Coburn    (Me.), 
166. 
Presumption  that  bank  knows 
depositor's  signature. 
Neal  et  al.  v.  Coburn  (Me.), 
166. 
Recovery  by   bank  which  has 
paid  raised  paper. 
Continental    Nat.    Bank     of 
New  York  v.  Tradesmen's 
Nat.  Bank    of  New    York 
(N.  Y.),  103. 
Recovery  of  amount  paid  bona 
fide   holder  of   forged  check. 
First  Nat.  Bank  of  Marshall- 
town       V.      Marshalltown 
State  Bank  (Iowa),  179. 
Implied    power   of    president  to 
rediscount  notes. 
Auten  V.    United    States    Nat. 
Bank   of  New  York  (U.  S.), 
416. 
Liability   for    failure   to  comply 
with      order        of       depositor 
stopping  paj'ment  of  check. 
Elder  v.  Franklin    Nat.   Bank 
of  City  of  New  York  (N.  Y.), 
507. 
Liability  for  refusal  to  paj'  draft. 
Guthrie     Nat.     Bank    v.     Gill 
(Okla,),  183. 
Liability    for  ultra  vires  act    in 
making  false  representations. 
American  Nat.  Bank  of  Denver 
V.  Hammond  (Colo.),  409. 
Power  to  rediscount. 

Auten  V.  United  States  Nat. 
Bank  of  New  York  (U.  S.), 
416. 


782 


GENERAL  INDEX 


-BA-l^K-S—Cofi  finned. 

Power  to  rescind  loan  and  cancel 
credit  extended  to  correspond- 
ent bank,  were  such  loan  and 
credit  were  obtained  through 
the  fraud  of  a  third  party. 
Selover  v.  First  Nat.  Bank  of 
Minneapolis  (Minn.),  739. 
President's  knowledge  of  his 
embezzlement  not  chargeable 
to  bank. 

Lamson  cf  at.  v.  Beard  (C.  C. 
A.),  568. 
Refusal     of     correspondent      to 
honor  check  does  not  constitute 
act   of    insolvency   on  part   of 
bank  drawing  it. 
McDonald    v.    Chemical    Nat. 
Bank  (U.  S.),  657. 
Relation  to  depositor. 

Rice    et   al.   v.    Citizens'    Nat. 
Bank  (Ky.),  512. 
Right  to    set-off  deposit  against 
debt. 

Columbia   Nat.    Bank    v.    Ger- 
man  Nat.    Bank  (Neb.),  43. 
Stattitory    provisions  as  to   dis- 
tribution of  assets  of  insolvent 
bank. 

Citizens'  Bank  of  Mound  City 
et  al.  V.  State  ex  rel.  Atty. 
Gen.,  et  al.  (Kan.),  85. 

Unincorporated  Banks. 
Not  a  legal  entity. 

Eongfellow       V.       Barnard 
(Neb.),  751. 
Right  to  dispose  of  assets. 
Longfellow       v.        Barnard 
(Neb.),  751. 

BILLS  AND  NOTES. 
See  Protest. 

Circumstances  may  relieve  one 
negotiating  purchase  of  note 
from  inquiry  as  to  liolder's 
title. 

Auten  V.  United  States  Nat. 
Bank  of  New  York  (U.  S.), 
416. 

Discounting  accommodation 
paper  with  knowledge  on  the 
part  of  the  bank's  officers  of 
its  nature  does  not  prevent  re- 
covery thereon. 
Israel  v.  Gale  (U.  S.),  705. 


BILLS  AND  ^OT-^^— Continued 
Guarant}'  of  endorser  as  to  legal 
capacity  of  maker. 
M.   V.    Monarch   Co.   et  al.    v. 
Farmers'  &    Drovers'    Bank 
(Ky.),  146. 
Insolvency   of   the   maker   of   a 
note  which  was   appropriated 
to     a     bank's    use     after    the 
maker's  insolvency   and   with 
his      knowledge      cannot     be 
taken  advantage  of  by  his  as- 
signees \o  defeat  tlie  appropri- 
ation. 

First   Nat.    Bank  of  Brandon 
z'.  Briggs'   Assignees    (Vt.), 
19. 
Maker  of  note  given   for  illegal 
consideration   not  estopped  to 
set  up  illegality  as  a  defense. 
Dickson    et  al.  v.   Baker  et  al. 
(Minn.),  140. 
Note   given  to  savings   bank  to 
secure   election   of    maker    as 
trustee  of  bank  is  void. 
Dickson   et  al.  v.    Baker  et   al. 
(Minn.),  140. 
Note  payable  "on  or  before"  cer- 
tain date  is  negotiable. 
Gill  V.  First  Nat.  Bank  (Tex.), 
28. 
Subsequent  equities  as  affecting 
bona  fide  purchaser  of  note. 
Merchants'  &  Planters'   Bank 
V.  Penland  (Tenn.),  25. 
Sufficiency    of    evidence    of    ac- 
ceptance    of      accommodation 
paper  as   payment  of  anteced- 
ent debt. 
Israel  v.  Gale  (U.  S.),  705. 

BILLS  OF  LADING. 

Bank  cashing-  draft    attached  to 
bill     of    lading    has    title    to 
goods    as    against     attaching 
creditor. 
American    Trust   &     Savings 

Bank    v.    Austin   et   al.    (N. 

Y.),  122. 
Collection   of   bill   of    exchange 
having  bill  of  lading  attached . 
Oxford    Lake    Line    v.    First 

Nat.     Bank      of     Pensacola 

(Fla.),   126. 


GENERAL  INDEX 


783 


BOOKS. 

Inspection    by      stockholder     of 
corporate  books. 
State  ex  rel.  Burke  v.  Citizens' 
Bank  of  Jennings  (L,a.),  369. 

BURDEN  OP  PROOF. 

Burden  of  proving  unreason- 
ableness of  custom  as  to  col- 
lections lies  with  the  party 
attacking  the  reasonableness 
of  such  custom. 
Kershaw  v.  Ladd  et  al.  (Ore.), 

271. 
Knowledge      of      principal       of 
material  facts  must  be  shown, 
where  it  is  sought  to  bind  him 
xtpon    ground  of  ratification. 
Oxford    L,ake    Line    v.     First 

Nat.     Bank      of     Pensacola 

(Fla.),  126. 

BY-LAWS. 

Prohibition    of    examination    of 
books  by  stockholder. 
State  ex  rel.  Burke  v.  Citizens' 
Bank  of  Jennings  (La.) ,  369. 

CERTIFICATES   OP   DE- 
POSIT. 

See  Deposits. 

CERTIFIED  CHECKS. 

Cancellation    of    certified    check 

returned   from   clearing  house 

operating  as  payment. 

Continental     Nat.     Bank      of 

New    York    v.   Tradesmen's 

Nat.  Bank  of  New  York  (N. 

Y.),  103. 

CHARTERS. 

Existence  of  national  bank  after 
expiration  of  charter. 
Farmers'   Nat.    Bank  of  Owa- 
tonna      v.     Backus      ct     al. 
(Minn.),  49. 

CHECKS. 

See  Raised  Paper. 
Bank    cannot    recover    amount 

paid   to    bona    fide   holder   of 

forged  check. 

First  Nat.  Bank  of  Marshall- 
town  V.  Marshalltown  State 
Bank  (Iowa),  179. 


CHECKS— Cc«/z«z^<?rf. 

Bank  paying  out  to  depositor  of 
check  amount  called  for  bj' 
check  becomes  purchaser  of 
check. 

Taft    V.     Ouinsigamond     Nat. 
Bank  (Mass.),  99. 
Cancellation    of   certified    check 
returned  from  clearing  house 
as  payment. 

Continental  Nat.  Bank  of  New 

York    V.    Tradesmen's    Nat. 

Bank  of  New  York  (N.  Y.), 

103. 

Check    operates     a    transfer   of 

sum  called  for. 

Columbia  Nat.  Bank  v.  Ger- 
man Nat.  Bank  (Neb.),  43. 
Collecting  bank  receiving  check 
to  pay  draft  has,  as  between 
itself  and  the  drawer  of  the 
check,  until  close  of  business 
hours  on  next  secular  day  to 
present  it. 

Morris   v.    Eufaula  Nat.  Bank 
(Ala.),  677. 
Consideration  for. 

Valdetero    v.     Citizens'     Bank 
of  Jennings  et  al.  (La.),  601. 
Effect  of  endorsement  in  blank 
on  deposited  check. 
Doppelt  V.    National    Bank   of 
The  Republic  (111.),  96. 
Effect   on    drawee  of  forged  en- 
dorsement on  checking  having 
forged  signature. 
First  Nat.    Bank  of    Marshall- 
town  V.  Marshalltown  State 
Bank  (Iowa) ,  179. 
Forged  chec'<is. 

Neal  dV   at.    v.   Coburn    (Me.), 
166. 
Liability  of   bank   for  failure  to 
obey  order   stopping  payment 
of  check. 

Elder  v.  Franklin   Nat.  Bank 
of  City  of  New  York  (N.  Y.), 
507. 
Mailing  as  delivery. 

McDonald    v.    Chemical    Nat. 
Bank  (U.  S.),  657. 
Negligence   of    bank    in   paj'ing 
forged  check. 

First  Nat.  Bank  of  Marshall- 
town  V.  Marshalltown  State 
Bank  (Iowa),  179. 


784 


GENERAL  INDEX 


CUECTSLS— Continued. 
One  cashing-    forg-ed  check  who 
repaid    to    bank     amount     of 
check     cannot     recover    from 
prior  innocent  holder. 
Neal  ^Z  aL    v.    Coburn    (Me.), 
166. 
Ownership  of  deposited  checks. 
Moore  v.    Riverside  Bank   (N. 
Y.),  93. 
P  a  y  m  e  nt   on   forg-ed   endorse- 
ment. 

Rice   ei  al.    v.    Citizens'    Nat. 
Bank  (Ky.),  512. 
Prior     general    assignment    by 
depositor    as   ground    for    re- 
fusal to  honor  draft. 
Guthrie     Nat.     Bank     v.     Gill 
(Okla.),183. 
Priority  of  check  drawn  before, 
but  presented   after  service  of 
attachment. 

Winchester  Bank  v.  Clark 
County  Nat.  Bank  (Ky.), 
515. 

Right  of  bank  which  has  cashed 
check  of  insolvent  to  recover 
from  his  assig-nee. 
Corn   Exchang-e  Nat.  Bank  v. 
Solicitors'  Loan  &  Trust  Co. 
et  al.  (Pa.),  120. 
Right  of    holder   to   recover  for 
refusal  of  bank  to  honor. 
Columbia   Nat.    Bank  v.    Ger- 
man  Nat.    Bank   (Neb.),  43. 
Right  of    holder   to  recover   for 
refusal  to  honor  check. 
Guthrie     Nat.     Bank     v.    Gill 
(Okla.),  183. 
Right  to  reclaim  checks  received 
by  bank   for   collection   when 
insolvent. 

Richardson    v.    Denegre  et  al. 
(C.  C.  A.),  503. 
Rig-hts   of   bona   fide   holder    of 
deposited  check. 
Riverside  Bank  v.  Woodhaven 
Junction  Eand  Co.  et  al.  (N. 
Y.),297. 
Stopping  payment  of. 

Valdetero  v.  Citizens'  Bank 
of  Jennings  £>/ a/.  (La.),  601. 


COLLECTIONS. 

See  Banks. 


COMMERCIAL  PAPER. 
See  Drafts. 

CONTRACTS. 
Estoppel  to  plead  ultra    vires  as 
defense  to  executed    contract. 
Gill  V.  First  Nat.  Bank  (Tex.), 

28. 

CONVERSION. 

National  bank  appropriating 
notes  left  with  if  for  sale  is 
liable  as  for  a  conversion, 
even  though  it  was  ultra  vires 
for  it  to  sell  them  as  the 
owner's  agent. 
First    Nat.     Bank    of    Grand 

Forks,    N.    D.    v.    Anderson 

(U.  S.),  89. 

CORPORATIONS. 

Compensation  of  expert  ap- 
pointed by  court  to  assist 
stockholder  in  examination  of 
books  should  not  be  charged 
ag-ainst  corporation. 
State  ex  ret.  Burke  v.  Citi- 
zens' Bank  of  Jennings 
(La.),  369. 

Examination  of  books  by  stock- 
holder. 

State  ex  ret.  Burke  v.  Cit- 
izens' Bank  of  Jennings 
(La.),  369. 

Fact  of  two  corporations  having 
a   common     officer     does     not 
make   one   the     agent    of   the 
other. 
National   Bank   of   Commerce 

in    Denver   v.     Allen    et  al. 

(C.  C.  A.),  53. 
Power  to  become  surety. 

M.    V.  Monarch   Co.   et  al.    v. 

Farmers'  &    Drovers'    Bank 

(Ky.),  146. 
Power  to  endorse. 

National   Bank   of   Commerce 

in   Denver   v.     Allen   et   al. 

(C.  C.  A.),  53. 

COSTS. 

See  Judgments. 

CREDITORS. 

See  Dividends. 


GENERAL  INDEX 


785 


CREDITOR'S  BILLS. 

Intervention. 

National  Bank  of  Commerce 
in  Denver  v.  Allen  et  al. 
(C.  C.  A.),  53. 

CUSTOMS. 

Union  Nat.  Bank  v.    Citizens' 

Bank   of   Union    City    et  al. 

(Ind.),712. 

Bank  customs  as  to   collections. 

Kershaw  v.  Ladd  et  al.  (Ore.), 

271. 

DAMAGES. 

In  action    for   false   representa- 
tions. 

American  Nat.  Bank  of  Den- 
ver V.  Hammond  (Colo.), 
409. 

DEFENSES. 

Estoppel  to  plead  irreconcilable 
defenses. 

Columbia  Nat.  Bank  v.  Ger- 
man Nat.  Bank    (Neb.),   43. 

DEPOSITS. 

Application    of  deposit    in  insol- 
vent national  bank. 
First  Nat.  Bank  of  Cambridg-e, 
111.  V.   Hall  et  al.  (Ala.),  198. 
Bank's  lien  on   funds   deposited 
by  ag'ent. 

First    Nat.     Bank   of    Sharon, 

Pa.  V.  Valley  State  Bank  of 

Hutchinson    et    al.    (Kan.), 

698. 

Certificates  of  deposit  are  neg^o- 

tiable,  and  ownership  must  be 

proved  in  an  action  to  recover 

on  them. 

Zang-   et   al.     v.    Wyatt   et   al. 
(Colo.),  349. 
General     deposit     in    insolvent 
bank    not  entitled    to  priority. 
Schmelling-     v.     State     et    al. 
(Neb.),  670. 
Notice  to  bank   of  trust   attach- 
ing    to    funds     deposited     by 
agent. 

First  Nat.  Bank  of  Sharon, 
Pa.  V.  Valley  State  Bank  of 
Hutchinson  et  al.  (Kan.), 
698. 

B  CAS— 50 


Yi^VO'SVY^— Continued. 

Preference  of  trust  funds  in  in- 
solvent bank. 

New  Farmers'  Bank's  Trustee 
V.  Cockrell  (Ky.),  687. 
Public  money  in  insolvent  banl. 
is  a  trust  fund. 

State   ex   rel.  Anderson  et  al. 
V.  Thum  (Idaho),  481. 
Settiiig--oflf  deposit  against  debt. 
Hodgin  V.  People's  Nat.  Bank 
(N.  Car.),  498. 
Trust  funds. 

Guignon  v.  First  Nat.  Bank  of 
Helena  et  al.  (Mont.),  290. 
Trust   funds     deposited   in    per- 
sonal account. 

Meyers   v.  New   York    County 
Nat.  Bank  (N.  Y.),  72. 
Verbal  directions  as  to  applica- 
tion of. 

First  Nat.  Bank  of  Cambridge, 
111.  V.  Hall  et  al.  (Ala.),  198. 

DIRECTORS. 

Duties  of  bank  directors. 

Warren  et  al.  v.  Robison  et  al. 
(Utah),  541. 
Equity    jurisdiction     of     action 

against   national    bank  direct- 
ors   for    misappropriation     of 

funds. 

Cooper  et  al.  v.  Hill  (C.  C.  A.), 
524. 
Fact  that  directors  of  bank  had 

delegated  their  authority  does 

not  relieve  them  from  liabilitj^ 

for  mismanagement. 

Warren   etal.  v.  Robison  et  al. 
(Utah),  541. 
Liabilitj-  of  directors  of  national 

banks      attesting      report      to 

comptroller. 

Gerner  v.  Mosher  et  al.  (Neb.), 
457. 
Liability  of  directors  of  national 

banks  for  making-  false  reports 

to  comptroller. 

Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 
Liability  of  directors  of  national 

bank  "for    misappropriation  of 

funds. 

Cooper  et  al.  v.  Hill  (C.  C.  A.), 
524. 


786 


GENERAL    INDEX 


DIRECTORS— Ct^w/Zw/zt't/. 

Liiibility  of  directors  of  savings 
bank  for  negligence    causing 
bank's  insolvency. 
Union   Nat.    Bank   of   Kansas 
City  etal.  v.  YiWXetal.  (Mo.), 
443. 
Neglect  of  duty  by  bank  direct- 
ors. 

Warren  ctal.   z-.  Robison  t'/«/. 
(Utah),  541. 
Negligence    of,     causing    insol- 
vency of  savings  bank. 
Union    Nat.    Bank    of  Kansas 
City    et    al.    v.    Hill   et     al. 
(Mo.),  443. 

DIVIDENDS. 

Laches  and  estoppel  in  action  to 
determine  basis  of  declaration 
of  dividends  by  receiver  of  in- 
solvent national  bank. 
Merrill    v.   National    Bank    of 
Jacksonville  (U.  S.),  210.  _ 
Right  of  receiver  to  recover  div- 
idends paid  out  of  capital. 
McDonald    v.  Williams    et   al. 
(U.  S.),  724. 
Rights  of    secured  creditors    not 
aifected  by  bankruptcy  rule. 
Merrill   v\   National    Bank    of 
Jacksonville  (U.  S.),  210. 


DRAFTS. 

See  Checks. 

Draft  wrongfully  used  by  presi- 
dent of  bank  to  pay  his  own 
debt  is  not  commercial  paper. 
Lamson  et  al.  v.    Beard  (C.  C. 

A.),  568. 
Right  to  recover   on   drafts   ex- 
ecuted by  national  bank  under 
ultra  vires  contract. 
Bowen  v.  Needles   Nat.    Bank 

et  al.  (C.  C.  A.),  644. 

ENDORSEMENTS. 
See  Checks. 

Endorsement  in  blank  on  de- 
posited check. 

Doppelt  V.    National    Bank  of 
The  Republic  (111.),  96. 

EQUITY. 

Jurisdiction    of     action    against 


EQUITY—  Continued. 

national   bank     directors     for 
misappropriation  of  funds. 
Cooper  et  al.  v.  Hill  (C.  C.  A.), 
524. 
Jurisdiction    of    action     against 
receiver  of  insolvent   national 
bank    to   determine    basis   for 
declaration  of  dividends. 
Merrill   v.    National    Bank  of 
Jacksonville   (U.  S.),  210. 

ESTOPPEL. 

Corporation      having      received 
benefits    of     contract     is     es- 
topped to  plead  ultra  vires. 
Bowen  v.    Needles  Nat.   Bank 
etal.  (C.  C.  A.),  644. 
Estoppel  in  action  to   determine 
basis    of   declaration     by     re- 
ceiver   of    insolvent   national 
bank  of  dividends. 
Merrill    v.   National    Bank    of 
Jacksonville  (U.  S.),  210. 
Maker  of  note  given  for   illegal 
consideration  not   estopped  to 
set  up  illegality  as  a   defense. 
Dickson  et  al.   v.   Baker   et  al. 
(Minn.),  140. 
National  bank  not    estopped    to 
plead  ultra  vires  as  defense  to 
action    against    it    by    the    re- 
ceiver of  an  insolvent  national 
bank  to  enforce  its  liability  as 
a    stockholder    in    such    insol- 
vent. 

First  Nat.    Bank   of    Concord, 

N.  H.    V.    Hawkins    (U.S.), 

635. 

National  bank  which  has  shared 

benefits  of    executed  contract 

is    estopped     to      plead     ultra 

vires. 

Gin  V.  First  Nat.  Bank  (Tex.), 
28. 
One  who  attempts  to    dispose  of 
worthless  paper     fraudulently 
passed  on  him  by  a  bank,  after 
he  knew  of  such  fraud,  is    not 
estopped    to     bring     action 
against  the  bank. 
Pronger    v.     Old     Nat.    Bank 
(Wash.),  399. 
Pleading     irreconcilable    de- 
fenses. 

Columbia  Nat.    Bank    v.    Ger- 
man Nat.  Bank    (Neb.),    43. 


GENERAIv   INDEX 


Vb7 


EVIDENCE. 

Admission  of  improper  evidence 
during'    trial  without  jury  not 
ground  for  reversal. 
Schmelling-     v.     State    et    al. 
(Neb.),  670. 
Bank  books    as  evidence    in    ac- 
tion  ag-ainst  its    stockholders. 
Zang-   et   al.    v.    Wyant    et    at. 
(Colo.),  349. 
Error  in  admission    of  evidence 
of     irrelevant    or     immaterial 
facts  stated  in  special  findings 
is  harmless. 

Lamson  et   at.  v.   Beard  (C.  C. 
A.),  568. 
Evidence   of  ainounts  deposited 
in   bank. 

Zang    et  al.    v.  Wvant   et    at. 
(Colo.),  349. 
Finding  not  reviewed  where  evi- 
dence is  conflicting  if  evidence 
is  sufficient  to  support  it. 
Schmelling    v.    State     et     at. 
(Neb.),  670. 
Harmless  error. 

Selover  v.  First  Nat.    Bank  of 
Minneapolis  (Minn.),  739. 
Irrelevant  evidence. 

Doppelt    V.  National    Bank  of 
The  Republic  (111.),  96. 
New  evidence  on  appeal. 

Zang   et   at.    v.    Wyant   et   al. 
(Colo.),  349. 
Overcoming  special  findings. 
Lamson  et  al.  v.  Beard   (C.  C. 
A.),  568. 
Presumption    that  court  consid- 
ered none  but  proper  evidence 
where  case   was  tried   without 
jury. 

Schmelling      v.    State     et    at. 
(Neb.),  670. 
Stock   book  as   evidence  of  who 
are  stockholders. 
Zang   et   at.    v.   Wyant   et   al. 
(Colo.),  349. 
Sufficiency     of,     in     action    for 
false  representations. 
Pronger    z'.  Old    Nat.   Banket 
at.  (Wash.),  399. 
Sufficiency    of    evidence    of   ac- 
ceptance     of     accommodation 
paper     as    payment    of    ante- 
cedent debt. 
Israel  v.  Gale  (U.  S.),  705. 


EVlT>BNCB—Cofit/?!ued. 

Testimony    distinguished    from. 
Columbia    Nat.    Bank    v.  Ger- 
man Nat.  Bank  (Neb.),  43. 

EXCEPTIONS. 

.See  Praetiee. 

EXEMPTIONS. 

See  Taxation. 

FALSE  REPRESENTATIONS. 

See  Reports. 
Bank's  liability   for    ultra    vires 
acts  in  making  false  represen- 
tations. 

American       Nat.       Bank        of 
Denver  v.  Hammond  (Colo.), 
409. 
Damages. 

American       Nat.        Bank       of 
Denver  :■.  Hammond  (Colo.), 
409. 
Reliance  upon. 

American  Nat.   Bank   of  Den- 
ver   V.    Hammond     (Colo.), 
409. 
Sufficiency  of  evidence  in  action 
for. 

Pronger  v.  Old   Nat.  Bank  et 
at.  (Wash.),  399. 

FEDERAL  COURT. 

Decision  of  federal  court  that 
action  is  not  within  jurisdic- 
tion of  such  court  is  binding 
on  state  court. 

Gerner  v.  Mosher  et  at.  (Neb.), 
457. 

How  far  decisions  in  state  courts 
are  binding. 

Beard  v.   Independent  Dist.  of 
Pella  City  (C.  C.  A.),  385. 

FORGERY. 

See  Banl^s. 
Cheefcs. 

GARNISHMENT. 

See  jVatio/ial  Banfcs. 

GUARANTY. 

National  bank  cannot  enter  into 
contract  of. 

Bowen  v.    Needles  Nat.  Bank 
et  al.  (C.  C.  A.),  644. 


788 


GENERAIv   INDEX 


INSPECTION. 

See  Books. 

INSOLVENCY. 

Bank  miug-ling  collections  with 
its  own  funds. 
Union  Nat.  Bank   v.  Citizens' 

Bank  of  Union  City  et  al. 
(Ind.),  712. 
Bank  which  has  cashed  check 
of  insolvent  may  recover  from 
his  assig'nee  where  the  money 
can  be  disting-uished. 
Corn  Exchange  Nat.  Bank  v. 

Solicitors'  Loan  &  Trust  Co. 

et  al.    (Pa.),  120. 
Directors  of  saving's  bank  whose 
negligence    caused    its   insol- 
vency  are  liable   to    its   cred- 
itors. 
Union   Nat.    Bank   of  Kansas 

City  ctal.  V.  Hill  et  al.  (Mo.), 

443. 
Effect  of  deed  made  by  president 
of  insolvent  national   bank  in 
good  faith  to  secure  advance 
inade  to  bank. 
Stapylton  v.  Stockton  6'/ a/.  (C. 

C.  A.),  262. 
Insolvency  of  national  bank  as 
affecting    application    of     de- 
posit. 
First  Nat.  Bank  of  Cambridge, 

111.  V.  Hall  et  al.  (Ala.),  198. 
Insolvency  of  the  maker  of  a 
note  which  was  appropriated 
to  a  bank's  use  after  the 
maker's  insolvency  and  with 
his  knowledge  cannot  be  taken 
advantage  of  by  his  assignees 
to  defeat  the  appropriation. 
First  Nat.  Bank  of  Brandon  v. 

Brigg's  Assignees  (Vt.),  19. 
Negligence  of   directors  of  sav- 
ings   bank  causing   its  insol- 
vency. 
Union    Nat.    Bank  of  Kansas 

City  et  al.  v.  Hill  et  al.  (Mo.), 

443!! 
Power    of     insolvent     national 
bank  to  transfer  property. 
Stapylton    v.    Stockton   et    al. 

(C.  C.  A.),  262. 

Preferences. 

Burrell    et     al.    v.    Bennett 
(Wash.),  673. 


INSOLVENCY— Cow /;•«  7^  ^fl'. 

Bank  forwarding  paper  for 
collection  to  another  bank  is 
not  entitled  to  preference 
upon  insolvency  of  latter 
where  such  collections  did 
not  increase  insolvent's  as- 
sets. 

Midland  Nat.  Bank  of  Kan- 
sas    City     V.      Brightwell 
(Mo.),  379. 
General     deposits      have     not 
priority. 

Schmelling    v.    State   et   al. 
(Neb.),  670. 
Officer    using     knowledge    to 
obtain. 

O'Brien  et  al.  v.  East  River 
Bridge  Co.    (N.  Y.),  615. 
Power   of   insolvent   bank     to 
make  payments. 
McDonald  v.  Chemical  Nat. 
Bank  (U.   S.),  657. 
School   district   having    funds 
in    insolvent    national  bank 
not  entitled  to  priorit3'. 
Beard  v.    Independent   Dist. 
of  Pella  City    (C.   C.  A.), 
385. 
Trust  funds  as. 

New     Farmers'     Bank's 

Trustee  v.  Cockrell   (Ky.), 

687. 

Proceeds  of  draft  as  trust  fund. 

Guignon  v.  First  Nat.  Bank  of 

Helena   et  al.    (Mont.),  290. 

Public  monej^  in  insolvent  bank 

is  trust  fund. 

State   ex   ret.    Anderson  et  al. 
V.  Thum  (Idaho).  481. 
Refusal   of   correspondent   to 
honor   check    does  not  consti- 
tute act  of  insolvency  on  part 
of  bank  drawing  it. 
McDonald    v.    Chemical    Nat. 
Bank  (U.  S.),  657. 
Right   to   reclaim    checks   re- 
ceived by   bank   for  collection 
when  insolvent. 
Richardson    v.   Denegre  et  al. 
(C.  C.  A.),  503. 
Statutory    provisions    as    to  dis- 
tribution  of    assets   of   insol- 
vent bank. 

Citizens'  Bank  of  Mound 
City  et  al.  v.  State  ex  ret. 
Atty.   Gen.  et  al.  (Kan.),  85. 


GENERAL,   INDEX 


789 


INTEREST. 

Interest  on  claims  pending-  pay- 
ment by  receiver. 
Guignou    V.    First  Nat.    Bank 
of  Helena  ^z"  a/.  (Mont.),  290. 

Interest  on  corporation's  debts 
constitutes  part  of  the  indebt- 
edness for  which  the  stock- 
holder's statutory  liability  is 
enforceable. 

Zang-  et  al.  v.  Wyant  et  al. 
(Colo.),  349. 

Interest   on    misappropriated 
funds  recoverable. 
Cooper  et  al.  v.  Hill  (C.  C.  A.), 
524. 

INTERVENTION. 

See  Creditor's  Bills. 
Practice. 

JUDGMENTS. 
Costs. 

Mead  z^.   Pettig-rew    (S.  Dak.), 
595. 
Reversal  of. 

Pronger  v.  Old   Nat.    Bank  et 
al.  (Wash.),  399. 
Variance  in  name  in. 

United  States  Nat.  Bank  of 
New  York  v.  Venner  (Mass.), 
81. 

JURISDICTION. 

See  Actions. 
Equity. 
Federal   jurisdiction    of   actions 
ag-ainst  national  banks. 
First    Nat.     Bank    of    Grand 
Forks,   N.    D.    v.     Anderson 
(U.  S.),  89. 

LACHES. 

.See  Dividends. 
L,aches    as    defense     in    action 
ag-ainst  national  bank    direct- 
ors   for  misappropriation     of 
funds. 

Cooper  et  at.  v.  Hill  (C.  C.  A.), 
524. 

LIENS. 

Bank's  lien  on  funds  deposited 
by  ag-ent. 


LIENS —  Co  ntin  ii  ed. 

First  Nat.  Bank  of  Sharon, 
Pa.  V.  Valley  State  Bank  of 
Hutchinson  et  al.  (Kan.), 
698. 

LIMITATION  OF  ACTION. 

Action  to  collect   privileg-e   tax. 
Union    &    Planters'     Bank    v. 
City    of     M  e  m  p  h  i  s    (?/   al. 
(Tenn.),  5. 

MERGER. 

Longfellow  v.  Barnard  (Neb.), 
751. 

MISJOINDER. 

See  Actions. 

MISAPPROPRIATION. 

Interest     on      funds     misappro- 
priated recoverable. 
Cooper  et  al.  v.  Hill  (C.  C.  A.), 
524. 

MORTGAGE. 

Consideration. 

Longfellow  v.  Barnard  (Neb.), 
751. 
Ignorance  of  party  secured. 
Longfellow  z'.  Barnard  (Neb.), 
751. 
Power  of  fraudulent    vendee   to 
mortgage   property   to   secure 
creditor  of  vendor. 
Longfellow  v.  Barnard  (Neb.), 
751. 

NATIONAL  BANKS. 
See  Reports. 
Bank   appropriating    notes   left 
with  it  for  sale  is  liable  as  for 
a  conversion,    even    though    it 
was  ultra  vires   for  it    to   sell 
them  as  the  owner's  agent. 
First     Nat.    Bank     of    Grand 
Forks,  N.     D.   v.     Anderson 
(U.  S.).  89. 
Contract   of     guaranty    is   ultra 
vires. 

Bowen  v.  Needles    Nat.    Bank 
et  al.  (C.  C.  A.),  644. 
Estoppel  to  plead  that    executed 
contract  was  ultra  vires. 
Gill  V.  First  Nat.  Bank(Tex.), 


790 


GENERAL   INDEX 


NATIONAL  BANKS— rt;;//V/. 
Existence   after     expiration    of 
charter. 

Farmers'      Nat.      Bank    of 
Owatonna    v.     Backus     ct   al. 
(Minn.),  49. 
Federal   jurisdiction   of  actions 
ag-ainst. 

First     Nat.     Bank   of    Grand 
Forks,     N.    D.     V.     Anderson 
(U.  S.),  89. 
Garnishees. 

Commonwealth,      to      use     of 
Commonwealth      Title     In- 
surance    &     Trust   Co.     V. 
Chestnut     St.     Nat.      Bank 
et  al.  (Pa.),  748. 
Holding-    stock    in     another    na- 
tional bank  is  ultra  vires. 
First  Nat.    Bank  of  Concord, 
N.    H.   V.   Hawkins    (U.  S.), 
635. 
Jurisdiction    of     action    ag^ainst 
receiver. 

Auten  V.   United    States   Nat. 
Bank  of  New  York    (U.  S.), 
416. 
Liability  for  ultra  vires  acts. 
Pronger  v.    Old   Nat.  Bank  ct 
al.  (Wash.),  399. 
Penalty  for  usury. 

Watt    V.    First   Nat.    Bank    of 
Lake  Benton,  Minn.  (Minn.), 
737. 
Personal   taxation  of  presidents 
of  national  banks. 
Linton,       Tax      Collector,     v. 
Childs  (Ga.),  306. 
Power      of     insolvent     national 
bank  to  transfer  property. 
Stapylton    v.    Stockton   et   al. 
(C.  C.  A.),  262. 

Power  to  repair  property  to  sell 
it. 

Cooper  ctal.  v.  Hill  (C.  C.  A.). 
524. 

Prospecting-  for  ore  on  its  prop- 
erty is  ultra  vires. 
Cooper  6'/* «/.  V.  Hill  (C.  C  A.), 
524. 

Provisions  of,  are  not  exclusive, 
and  do  not  preclude  action  for 
deceit. 

Stuart  V.   Bank  of  Staplehurst 
(Neb.),  518. 

Reports  to  comptroller. 


NATIONAL  BANKS— Co;//"rf. 
Gerner      v.      Mosher      et      al. 
(Neb.),  457. 
Right    to   recover  on   drafts   ex- 
ecuted by  national  bank  under 
ultra  vires  contract. 
Bowen   v.    Needles  Nat.    Bank 
et  al.  (C.  C.  A.),  644. 
Sale  of  shares  of   stockholder  to 
collect   assessment    levied   on 
his  stock. 

Merchants'  Nat.  Bank  of  Rome 
V.  Fouche  (Ga.),  745. 

NEGLIGENCE. 

See  Jlatiks. 

Directors. 
Question   of   bank's    neg-lig-ence 
in    paying-  raised   paper  is  for 
jury. 

Continental  Nat.  Bank  of 
New  York  v.  Tradesmen's 
Nat.  Bank  of  New  York  (N. 
Y.),  103. 

NOTARY. 

Bank's     liability     for     notary's 
negligence. 

First  Nat.  Bank  of  Manning 
V.  German  Bank  of  Carroll 
County  et  al.  (Iowa),  300. 

NOTICE. 

See  Protest. 
Bank     not    chargeable     with 
president's   knowledge  of   his 
embezzlement. 

Lamson  et  al.  v.  Beard  (C.  C. 
A.),  568. 
Drawee  of   bank's   draft   drav^n 
by    president  to  pay  his  indi- 
vidual debt  must  inquire  as  to 
president's  authority. 
Lamson   et  al.  v.  Beard  (C.  C. 
A.),  568. 
Knowledge   of   one     partner   as 
notice  to  all. 

Gill  V.  First  Nat.  Bank  (Tex.), 
28. 
Notice  to  bank   of  trust  attach- 
ing   to     funds     deposited     by 
agent. 

First  Nat.  Bank  of  Sharon, 
Pa.  V.  Valley  State  Bank  of 
Hutchinson  et  al.  (Kan.), 
698. 


GENERAL  INDEX 


791 


mOTlCEl—CorifiHiied. 

Notice   to   cashier    as    notice  to 
bank. 

Merchants'  &    Planters'  Bank 
57.  Penland  (Tenn.),  25. 
When    knowledge   of   officers   is 
not  notice  to  bank. 
First  Nat.    Bank   of    Brandon 
V.    Briggs'   Assignees  (Vt.), 
19. 

OFFICERS  AND  AGENTS. 
See  Directors. 
Authority  of   president  of  insol- 
vent   national    bank    to  trans- 
fer property. 

Stapylton    v.    Stockton    ct   al. 
(C.  C.  A.),  262. 
Bank  not  chargeable  with  presi- 
dent's  knowledge   of   his  em- 
bezzlement. 

Lamson  ct  at.  v.  Beard   (C.  C. 
A.),  568. 
Cashier's    power   to   bind   bank 
by  contract. 

Valdetero  v.  Citizens'  Bank  of 
Jennings   et  al.     (La.),    601. 
Creditor  receiving  bank's  draft 
drawn  by  president  to  pay  his 
individual   debt    must   inquire 
as    to     president's     authority. 
Lamson  ct  at.  v.   Beard  (C.  C. 
A.),  568. 
Implied     power    of    bank    presi- 
dent to  rediscount  notes. 
Auten    V.   United   States  Nat. 
Bank  of   New   York  (U.  S.), 
416. 
Knowledge  of  officers  and  agents 
of  national  bank  of  falsity  of 
report  to  comptroller. 
Gerner  z'.  Mosher  ^V  a/.  (Neb.), 
457. 
Laches   may  be   invoked   in   de- 
fense of  national  bank  officers. 
Cooper  etat.  v.  Hill  (C.  C.  A.), 
524. 
Misuse  of  bank's  draft  by  presi- 
dent having  apparent  author- 
ity. 

Lamson  et  at.  v.  Beard   (C.  C. 
A..),  568. 
Officer  of    insolvent  bank  using 
knowledge   to    obtain    prefer- 
ence. 

O'Brien    etat.    v.    East    River 
Bridge  Co.  (N.  Y.),  615. 


OFFCIERS    AND    AGENTS  — 
Continued. 
Personal    taxation   of   national 
bank  presidents  is  unconstitu- 
tional! 

Linton,    Tax    Collector,    v. 
Childs  (Ga.),  306. 
President  cannot  release  maker 
of   subscription   note  to  stock 
of  bank. 

Mead  z'.  Pettigrew   (S.  Dak.), 
595. 
President  using  general  author- 
ity in  his  own  behalf. 
Lamson  et   al.  v.  Beard  (C.  C. 
A.),  56S. 
Relation   of  trustees  of  savings 
banks  to  depositors. 
Dickson   et  at.    v.    Baker  et  at. 
(Minn.),  140. 
Trustee  of  savings  bank  barter- 
ing- office  for  notes. 
Dickson  et  at.  v.  Baker  et  at. 
(Minn.),  140. 
When    knowledge    of    officers   is 
not  notice  to  bank. 
First    Nat.    Bank  of  Brandon 
V.  Briggs'  Assignees   (Vt.), 
19. 

PARTIES. 

See  Actions. 

PARTNERSHIPS. 

Gill  V.  First  Nat.  Bank  (Tex.), 
28. 
Setting-off  deposits  of    partner- 
ship against  debt  of  individual 
partner. 

Hodgin  V.  People's  Nat.  Bank 
(N.  Car.),  493. 

PLEADING. 

Action  against  directors   of    na- 
tional bank  for  deceit. 
Stuart  V.   Bank  of  Staplehurst 
(Neb.),  518. 
Action  on  bill  of  exchange. 
Rudd  et  al.    v.    Deposit    Bank 
(Ky.),157. 
Bad  replication  is    good   answer 
to  bad  plea. 

Oxford  Lake  Line  v.  First 
Nat.  Bank  of  Pensacola 
(Fla.),  126. 


792 


GENERAL   INDEX 


PLEADING— C<; ;///;/ /^r</. 
Corporate  existence. 

Gill  V.  First  Nat.  Bank  (Tex.), 
28. 
Count  in   case  cannot   be  joined 
with  one  in  assumpsit. 
Morris  v.  Eufaula   Nat.   Bank 
(Ala.),  677. 
Curing-  defect. 

State  tw  rel.  Anderson   et  al. 
V.  Thuni  (Idaho),  481. 
Estoppel  to  plead   irreconcilable 
defenses. 

Columbia    Nat.    Bank   v.    Ger- 
man Nat.    Bank  (Neb.),    43. 
False  representji.tions. 
Gerner  z'.  Mosher  cVrt/.  (Neb.), 
457. 
General  denials. 

Mead  z'.   Pettigrew    (S.  Dak.), 
595. 
Pleading-    and    proving    non-es- 
sential facts. 

Cooper  etal.  v.  Hill  (C.  C.  A.), 
524. 

PLEDGE. 

Pledge  of  part  of  corporation's 
stock  with  bank  does  not  make 
the     corporation    the     bank's 
agent. 
National  Bank    of    Commerce 

in  Denver  v.  Allen  et  al.  (C. 

C.  A.),  53. 
Voting-  pledged  stock. 

National   13ank    of   Commerce 

in  Denver  v.  Allen  el  al.  (C. 

C.  A.),  53. 

PRACTICE. 

Bill  of  exceptions. 

Columbia    Nat.    Bank    v.   Ger- 
man  Nat.    Bank    (Neb.),  43. 
Intervention  by  receiver. 

Andrews  v.   Steele  Citv  Bank 
et  al.  (Neb.),  76. 
Intervention  in  creditor's  bill. 
National    Bank    of  Commerce 
in  Denver  v.  Allen  et  al.  (C. 
C.  A.),  53. 

PREFERENCES. 
See  .Issiii'ninents. 

Insolvency. 
National    Bank    of    Commerce 
in  Denver  v.   Allen  et  al.  (C. 
C.  A.).  53. 


PROTEST. 

Bank's     liability      for     notary's 

negligence  in  sending  notice. 

First  Nat.    Bank  of  Manning 

V.  German    Bank  of  Carroll 

County  et  al.  (Iowa),  300. 

Notice  of. 

Monarch  et  al.   v.  Farmers'  & 

Traders'  Bank  (Ky.),  153. 
M.    V.   Monarch   Co.    et  al.    v. 
Farmers'   &   Drovers'    Bank 
(Ky.),  146. 
Rudd  et  al.  v.    Deposit    Bank 
(Ky.),  157. 

QUESTIONS  OF  FACT. 

False  representations. 

American  Nat.  Bank  of 
Denver  v.  Hammond  (Colo.), 
409. 

RAISED  PAPER. 

Bank's  right  to  recover  where  it 

has  paid  raised  paper. 

Continental     Nat.       Bank     of 

New   York  v.    Tradesmen's 

Nat.  Bank  of  New   York  (N, 

Y.),  103. 

Negligence   of   bank    in  paying 

raised    paper    a    question    for 

jury 

Continental  Nat.  Bank  of 
New  York  v.  Tradesmen's 
Nat.  Bank  of  New  York 
(N.  Y.),  103. 

RATIFICATION. 

See  Agency. 
Question  whether  retention  of 
draft  b3'  bank  was  ratified  is 
immaterial  where  no  injur)- 
resulted  therefrom. 
Kershaw  v.  Ladd  et  al.  (Ore.), 
271. 

RECEIVERS. 

Collateral  attack  on  authority  of. 
Andrews   v.   Steele  City  Bank 
etal.  (Neb.),  76. 
End  attained  by  appointing. 
Longfellow  v.  Barnard  (Neb.), 
751. 
Interest  on   claims  pending  pay- 
ment by  receiver. 
Guig-non  v.  First  Nat.  Bank  of 
Helena  (Mont.),  290. 


GENERAL  INDEX 


793 


RECEIVERS— <fc«/'/>//^<-«'. 
Jurisdiction    of    action    ag-ainst 
national  bank  receiver. 
Auten   V.    United   States  Nat. 
Bank  of  New  York  (U.  S.), 
416. 
Liability   of    petitioner   for    ex- 
penses and  fees  of. 
Farmers'   Nat.  Bank  of  Owa- 
tonna      v.     Backus      ei    al. 
(Minn.),  49. 
Power  of  national  bank  receiver 
to  set-off  debt  due  bank. 
Auten   V.    United   States  Nat. 
Bank  of  New  York  (U.  S.), 
416. 
Receiver   of    insolvent    national 
bank    cannot   be   required    to 
pay  a  tax  assessed  against  the 
shares. 

Stapylton    v.    Thaggard,    Tax 
Collector,  (C.  C,  A.),  320. 
Receiver   of   insolvent    national 
bank   is   bound   by  deed  made 
in     g-ood    faith    by    president, 
transferring-       a     portion      of 
bank's   property    to  secure  an 
advance  made  to  bank. 
Stapylton    v.    Stockton    et  al. 
(C.  C.  A.),  262. 
Recovery  of  dividends  paid    out 
of  capital. 

McDonald   v.    Williams    et  al. 
(U.  S.),  724. 

REPORTS. 

Attestation  of  national  bank  re- 
ports. 

Gerner  v.  Mosher  et  al.  (Neb.), 
457. 
"Attest"  defined. 
Gerner  v.  Mosher  et  al.  (Neb.). 
457. 
False    representations     in     na- 
tional bank  reports. 
Gerner  z^.  Mosher  et  al.  (Neb.), 
457. 
Knowledg-e  of  officers  of   falsitj- 
of  reports. 

Gerner  v.  Mosher  et  al.  (Neb.), 
457. 
Liability     of    directors     of     na- 
tional banks  attesting-  reports 
to  comptroller. 

Gerner  v.  Mosher  et  al.  (Neb.), 
457. 


'R'E'PO-RTS— Continued. 

Liability  of  directors  of  na- 
tional bank  for  making  false 
report  to  comptroller. 
Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 
Pleading  and  proving  false  rep- 
resentations. 

Gerner  v.  Mosher  et  al.  (Neb.), 
457. 

Provisions  of  national  bank  act 
are  not  exclusive,  and  do  not 
preclude  action  for  deceit  in 
making  reports. 
Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 

Purpose  of  reports  required   to 
be  made  by  national    banks  to 
the  comptroller. 
Stuart  V.  Bank  of  Staplehurst 
(Neb.),  518. 

Reports  of    national   banks     to 
comptroller. 
Gerner  v.  Mosher  et  al.  (Neb.), 

457. 

RES  ADJUDIOATA. 

Union  &  Planters'  Bank  v. 
City  of  Memphis  et  al. 
(Tenn.),  5. 

REVERSAL. 

Grounds     for     reversing     judg- 
ment. 

Pronger  z'.  Old  Nat.  Bank  et 
al.  (Wash.),  399. 


REVIEW. 

See  Appeal. 

SAVINGS  BANKS. 

Exemption    of      deposits      from 
taxation. 

People  ex   ret.   Heermance   et 
at..  Tax  Com'rs,  v.  Dederick, 
City  Assessor,  (N.  Y.),    316. 
Relation  of  trustees   to   deposit- 
ors. 

Dickson  et  al.  v.    Baker   et  al. 
(Minn.),  140. 
Ultra  vires  contracts. 

Willett  V.  Farmers'  Sav.  Bank 
of  Victor   (Iowa),  32. 


794 


GENERAL    INDEX 


SET-OFF. 

Bank's  right  of  set-off. 

Columbia  Nat.    Bank    v.    Ger- 
man Nat.  Bank    (Neb.),    43. 
Bank's  right   to    set-off   deposit 
against  debt. 

Hodgin  V.  People's  Nat.  Bank 
(N.  Car.),  498. 
Power  of  receiver    of    national 
bank  to  set-off  debt  due  bank, 
in  an  action  against  receiver. 
Auten  V.    United  States   Nat. 
Bank  of  New   York    (U.S.), 
416. 
Setting-off   deposits   by    surviv- 
ing  partner   against    debt   of 
firm. 

Hodgin  V.  People's  Nat.  Bank 
(N.  Car.),  498. 

SPECIAL  FINDINGS. 

Evidence  overcoming. 

Lamson  et  al.  v.  Beard  (C.  C. 
A.),  568. 

STATUTES. 

Statute  as  to    double    taxation 
construed. 

Western  Investment  Sc  Bank- 
ing Co.  V.  Murray,  County 
Treasurer,  (Arizona) ,  758. 


STOCK. 

See  Taxation. 
Assessment  of    bank    stock   for 
taxation. 

"Western  Investment  Banking 
Co.      V.       Murray,      County 
Treasurer,  (Arizona),  758. 
Sale  of  shares  of  stockholder  in 
national    bank   to   collect   as- 
sessment levied  on  such  stock. 
Merchants'      Nat.      Bank     of 
Rome  z'.   Fouche  (Ga.),   745. 
Subscription. 

Authority  of   president   to  re- 
lease maker  of   subscription 
note  for  bank  stock. 
Mead  v.  Pettigrew  (S.  Dak.), 
595. 
Taxation   of  stock    held   by  non- 
residents. 

Scandinavian-Ainerican  Bank 
V.  Pierce  County  ct  al. 
(Wash.),  1. 


STOCK.— Continued. 
Voting  pledged  stock. 

National  Bank  of  Commerce 
in  Denver  v.  Allen  et  al.  (C. 
C.  A.),  53. 

STOCKHOLDERS. 

Examination  of  corporate  books. 
Gerner  v.  Mosher  et  al.  (Neb.), 
457. 
Right  to  inspect  books. 

State  e.v  ret.  Burke  v.  Citizens' 
Bank  of  Jennings  (La.),  369. 
Sale  of  shares  of  stockholder  in 
national    bank    to    collect    as- 
sessment levied  thereon. 
Merchants'  Nat.  Bank  of  Rome 
V.  Fouche  (Ga.),  745. 

Statutory  Liability. 

Creditors'  right  to  enforce, 
before  all  debts  have  been 
collected. 

Zang  et  al.   v.  Wyant  et  al. 
(Colo.),  349. 
Interest  on  corporation's  debts 
constitutes   part   of   the    in- 
debtedness   for    which    such 
liability  is  enforceable. 
Zang  et  al.   v.   Wyant  et   al. 
(Colo.),  349. 
Liability'  under  Colorado  stat- 
ute. 

Zang   et  al.    v.  Wj'ant  et  al. 
(Colo.),  349. 
Parties  defendant    in     action 
to  enforce. 

Zang   et  al.    v.   Wyant  et  al. 
(Colo.),  349. 
Parties   to  action   to   enforce. 
Zang  et  al.   v.  Wyant  et    al. 
(Colo.),  349. 

SURETY. 

Power  of  corporation  to  become. 
M.  V.  Monarch   Co.    et   al.    v. 
Farmers'   &  Drovers'    Bank 
(Ky.),  146. 

TAXATION. 

Assessment    of    shares  of    bank 

for. 

Western  Investment  &  Bank- 
ing Co.  V.  Murray,  County 
Treasurer,  (Arizona),  758. 


GENERAIv  INDEX 


795 


TAXATION—  Con  tin  ucd. 
Doable  taxation. 

Western  Investment  &  Bank- 
ing- Co.  V.  Murray,  County 
Treasurer,  (Arizona),  758. 

Exemption. 

Charter  provision  for  tax  on 
each  share  of  stock  sub- 
scribed "in  lieu  of  all  other 
taxes"  does  not  exempt  cap- 
ital stock. 

Union   &   Planters'  Bank  v. 
City    of    Memphis    ct    al. 
(Tenn.),  5. 
Charter    provision    for  tax  on 
each    share    of    stock     sub- 
scribed   for,  "in    lieu    of  all 
other  taxes,"   does    not    ex- 
empt capital  stock  from  priv^- 
ilege  tax. 

Union  &   Planters'  Bank  v. 
City     of    Memphis   ct     at. 
(Tenn.),  5. 
Exemption  of  deposits  in  sav- 
ings banks. 

People  ex  ret.  Heermance  et 

at..  Tax  Com'rs,   v.  Dede- 

rick,  City  Assessor, (N.-Y.), 

316. 

Einiitation    of  action    to    collect 

privilege  tax  on  capital  stock 

of  bank. 

Union  &  Planters'  Bank  v. 
City  of  Memphis  et  at. 
(Tenn.),  5. 

National  Banks. 

Assessment  against  the  bank 
of  tax  on  its  personal  prop- 
erty is  not  an  assessment 
upon  the  shares  and  against 
the  shareholders. 
Stapylton  v.  Thaggard,  Tax 
Collector,  (C.  C.  A.),  320. 
Discrimination  in  state  taxa- 
tion of. 

First  Nat.  Bank  of  Welling- 
ton,   Ohio    V.    Chapman, 
Treasurer     of     Lorain 
County,  Ohio,  (U.  S.),  325. 
Exemption  of  personal  assets. 
People  V.  National  Bank  of 
D.  O.    Mills  &   Co.    (Cal.), 
341. 
Receiver    of    insolvent     bank 
cannot  be  required  to  pay  a 


TAXATION — Co  n  tin  ucd. 

tax   assessed   a  g  a  i  nst   the 
shares. 

Stapvlton  V.  Thaggard,  Tax 
Collector,    (C.   C.  A.),320. 
State   taxation   of   national 
banks. 

Stapylton  v.  Thaggard,  Tax 

Collector,    (C.   C.  A.),  320. 

State   taxation    of   personal 

property  of  national  banks. 

City    and  County    of    San 

Francisco    v.    Crocker- 

Woolvvorth   Nat.    Bank   of 

San  Francisco  (C.  C),  318. 

Statute    i  m  p  o  s  i  ng   personal 

tax  on  presidents  of  national 

banks     is     unconstitutional. 

Linton,     Tax     Collector,     v. 

Childs  (Ga.),  30fa. 

Shares  of  stock  of  non-residents. 

Scandinavian-American  Bank 

V.     Pierce   County    et     al. 

(Wash.),  1. 

Validity  of  assessment. 

People  :'.  National  Bank  of  D. 
O.   Mills    &  Co.    (Cal.),  341. 

TESTIMONY. 

See  Evidence. 

TRIAL. 

Charge  to  jury. 

Pronger    v.     Old     Nat.     Bank 
(Wash.),  399. 
Leading  questions. 

S  c  h  m  e  lling   v.    State   et   at. 
(Neb.),  670. 

TRUST  FUNDS. 
See  Deposits. 
Insolvency. 

ULTRA  VIRES. 

Bank's  liability  for  ultra  vires 
act  in  making  false  represen- 
tations. 

American  Nat.    Bank  of  Den- 
ver V.  Hammond  (Colo.),  409, 
Contracts  of  savings  banks. 
Willett  V.  Farmers'  Sav.  Bank 
of  Victor  (Iowa),  32. 
Corporation   which   has  received 


796 


GENERAL  INDEX 


ULTRA  VIRES— 0«^///«^'(/. 

benefits    of     contract    is    es- 
topped to  plead  ultra  vires. 
Bowen  v.  Needles   Nat.    Bank 

et  al.  (C.  C.  A.),  644. 
National  banks. 

First    Nat.     Bank    of    Grand 

Forks,    N.    D.    v.    Anderson 

(U.  S.),  89. 
Prong-er  v.    Old   Nat.    Bank  et 

al.  (Wash.),  399. 
National    bank   cannot   enter 
into  contract  of  g-uarantv. 
Bowen  v.  Needles   Nat.  Bank 

et  al.  (C.  C.  A.),  644. 
National  bank  holding  stock  in 
another  national  bank. 
First    Nat.    Bank   of  Concord, 

N.  H.  V.    Hawkins    (U.    S.), 

635. 
National  bank  not  estopped  to 
plead  ultra  vires  as  defense  to 
action  against  it  by  receiver  of 
an  insolvent  national  bank  to 
enforce  its  liability  as  a  stock- 
holder in  such  insolvent. 
First  Nat.    Bank  of    Concord, 

N.  H.    V.    Hawkins    (U.  S.), 

635. 
National  bank    prospecting    for 
ore. 


ULTRA  '^YR'^'B,— Continued. 

Cooper  et  al.  v.  Hill  (C.  C.  A.), 

524. 

National  bank  which  has  shared 
benefits  of  executed  contract  is 
estopped  to  plead  ultra  vires. 
Gill  V.  First  Nat.  Bank  (Tex.), 

28. 

Rig-ht  to   recover   on   drafts  ex- 
ecuted by  national  bank  under 
ultra  vires  contract. 
Bowen  v.  Needles    Nat.    Bank 
etal.  (C.  C.  A.),  644. 

UNINCORPORATED  BANKS. 

See  Banks. 

USURY. 

Penalty  against  national  bank 
for. 

Watt    V.    First   Nat.    Bank   of 
Lake  Benton,  Minn.  (Minn.) , 
737. 
Remedies. 

Farrow     v.    First    Nat.    Bank 
(Ky.),16. 

VARIANCE. 

See  Judgments. 


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